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Exchange Types

There are several "variations on the theme" of Section 1031 exchanges. Many of these have a lot of similar requirements, but there are some differences, also.

The Simultaneous Tax Deferred Exchange
In this transaction, the closing of both Phase I and Phase II occur "simultaneously".  Due to the pressures of time, the fact that many times the two properties are in different locations, the requirements of lenders, etc., and, most importantly, the ability of the "Delayed" Tax-Deferred Exchange, simultaneous exchanges are rarely used.  Even when a client anticipates being able to consummate a simultaneous exchange, the use of a QI is recommended to provide a 'safety net', if something delays the closing of the Replacement Property and the exchange isn't "simultaneous".  The Exchange Agreement cannot be set up after the Relinquished Property has closed, so using a QI and planning for a delayed exchange is a wise insurance policy.

The Delayed Tax-Deferred Exchange
In this transaction, the closing of the sale of the Relinquished Property happens 'first', and the closing of the Replacement Property is "delayed" to a later date.  This transaction was sanctioned by the 1984 Tax Act.  The requirements for the use of a Qualified Intermediary, and the time requirements of the 45-day Identification Period and the 180-day Exchange Period were imposed with the 1984 Tax Act changes.

Personal Property Exchanges
Personal property held for investment or for productive use in a trade or business can qualify for Tax Deferred Exchange treatment. Virtually any business equipment that is depreciated relatively quickly but holds market value is an excellent candidate for a Section 1031 exchange. Personal Property includes many types of capital equipment such as transportation (aircraft, vessels, rail, trucks and autos), production, material handling, telecommunications, medical and data processing equipment.

The Reverse Exchange
This type of exchange is called a 'reverse' exchange because the chronological order of events is "reversed".  The Replacement Property is acquired, first, and then the Relinquished Property is sold.  However, because a taxpayer cannot exchange into property which it already owns, the taxpayer cannot acquire the Replacement Property.  Instead, a friendly third party (an "Exchange Accommodation Titleholder", or "EAT", which is provided by Reverse Exchange Services, Inc., one of IES' affiliates), purchases the Replacement Property, and, by agreement with the taxpayer, agrees to sell it to the taxpayer, after the taxpayer has sold the Relinquished Property to the buyer.  In the interim, the taxpayer has operating control over the Relinquished Property, but the EAT is considered the "tax owner".  For more information, go to the Reverse Exchange Services website

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