What is a Reverse Exchange and What Causes it to Fail?
A conventional IRC §1031 tax deferred exchange involves, among other things, a taxpayer’s sale of old property (the “relinquished property”) followed by the purchase of new property (the “replacement property”) within a 180 day period (see
http://www.accruit.com/1031-news/%C2%ADare-tax-deferred-exchanges-real-estate-approved-irs). A so-called reverse exchange takes place when the taxpayer is forced to acquire the replacement property, or face losing it, prior to the sale of the relinquished property. The sequence of the disposition and acquisition is “reverse” from the conventional transaction.
Is it possible for a property seller to finance the buyer when completing a like-kind exchange? The answer is yes but only under certain conditions. Such factors include the time period of the seller's loan, the potential of a cash loan from the seller to the buyer, and the use of a qualified intermediary as the loan recipient.
Asher Azim walks viewers through the basics of a 1031 like-kind exchange of business-use assets (in this case, construction equipment) in which a business owner is able to defer taxes when selling equipment and purchasing like-kind equipment.