A 1031 Tax Exchange Company Helping Taxpayers Defer Tax Liability Through Reverse and Improvement Exchanges

The typical way taxpayers execute 1031 exchanges is by selling one property and then purchasing another. However, 1031 exchanges can also be executed in reverse. Additionally, when buying a replacement property for business use or investment purposes (as required under Section 1031), making improvements to the property will often be necessary. This adds complexity to the process as well—and makes it especially important to work with a qualified 1031 tax exchange company.

What Are Reverse & Improvement Exchanges?

A reverse 1031 exchange is a tax deferment strategy employed when the replacement property needs to be acquired before selling the relinquished or old property. An improvement exchange is a type of exchange where a portion of the proceeds from the sale of the relinquished property is utilized to make improvements on the replacement property.

Reverse and improvement exchanges are two different methods of achieving tax deferral under Section 1031 of the Internal Revenue Code. However, they share one important similarity. With a traditional (or straightforward) exchange, the taxpayer can directly invest the proceeds from the sale of the exchanged property into the replacement property. But, with reverse and improvement exchanges, this isn’t the case. Instead, the replacement or the relinquished property must be “parked” for a period of time until all of the mechanics of the exchange process can be completed.

Reverse & Improvement Exchanges: An Overview Of The Process

Importantly, while Section 1031 allows for this “parking,” strict deadlines still apply. As a result, it is important to be able to navigate the process efficiently, and this is where working with a qualified 1031 tax exchange company comes into play. The company can assist with key aspects of the process such as:

  •  Managing the timing of the acquisition of the replacement property and sale of the exchanged property
  •  Managing the timing of the improvement (or “build to suit”) process for the replacement property
  • Completing all of the necessary documentation to execute each transaction and report the 1031 exchange to the IRS
  • “Parking” the replacement or the relinquished property and holding the proceeds from the sale of the exchanged property in escrow to preserve tax deferral eligibility
  • Ensuring that all of the properties and transactions involved in the exchange satisfy the pertinent requirements under Section 1031

Why It’s Important To Work With A 1031 Tax Exchange Company

Due to the complexity of reverse and improvement exchanges, it is important to work with a qualified 1031 tax exchange company throughout the process. There are several issues that require careful consideration, and there are several deadlines and individual steps to manage along the way. At 1031 National Services, we have been guiding taxpayers through reverse and improvement exchanges since 1994. We understand the complexities involved, and we have the knowledge and systems required to successfully complete these exchanges in a timely manner.

Contact Us To Discuss Your Reverse Or Improvement Exchange In Confidence

If you are contemplating a reverse or improvement exchange under Section 1031, we invite you to contact us to learn more about what we can do to help. As an attorney-owned company, we offer comprehensive services (including qualified intermediary services) for all types of 1031 exchanges. For more information, please call or tell us how we can reach you online today.