Our clients are looking for a high level of expertise in order to ensure that they will have the guidance and stewardship needed to complete these complex transactions. Most of our clients are dealing with potential tax liability in excess of $200,000.00 when they commit to a reverse exchange. Our reputation for handling reverse exchanges is nationwide, as we perform these transactions for clients throughout the United States.

We will spend as much time as it takes to ensure that a reverse exchange makes  sense to our clients. Some of our best referral sources are competing exchange companies that will not handle reverse exchanges and choose to refer the business to us.

A Reverse Front Leg transaction is actually a restructured simultaneous exchange that occurs when the taxpayer, through a Qualified Intermediary, (Capital 1031 Exchange Company, LLC), under the terms of an Exchange Agreement, transfers title in the Relinquished Property to a parking entity (“EAT”) and acquires title to the Replacement Property from a third party Seller. The “exchange” is actually completed in one day, but the Relinquished Property continues to be “parked” for a period of up to 180 days. If the Relinquished Property is not sold to a third party Buyer within 180 days, the “exchange” is actually “undone”.

The parking arrangement is accomplished through a written agreement called a Qualified Exchange Accommodation Agreement (“QEAA”). The parking entity is also called an Exchange Accommodation Titleholder (the “EAT”). Both the QEAA and the Exchange Agreement must be in place before the exchange begins. The QEAA is the document that provides that the EAT will “purchase” and park the Relinquished Property.

The funds necessary to purchase this property are usually a combination of assumption of the existing debt and funds borrowed from the taxpayer. While a holding company will act as the parking entity, Capital 1031 will act as Qualified Intermediary to accomplish the exchange. The taxpayer enters into an exchange agreement with Capital 1031.

Because the relinquished property is not ready to sell to a third party buyer, the taxpayer must assign his/her rights under the QEAA to Capital 1031 so that Capital 1031 has the rights to acquire title to the relinquished property and to receive the “cash” from the sale of the relinquished property.

Under the Exchange Agreement, the taxpayer also assigns his/her rights to acquire the replacement property to Capital 1031. Capital 1031 purchases the replacement property, using the funds from the relinquished property “sale” to the EAT. Under the QEAA, assignment for the relinquished property, and the assignment of the purchase agreement for the Replacement property, Capital 1031 requests direct deeding. Hence, the taxpayer deeds the relinquished property to the EAT, and the third party Seller deeds the Replacement property to the taxpayer.

Although the exchange is “completed” at this time, Capital 1031 still has rights under the QEAA, and these rights include the right to have the relinquished property transferred to a third party buyer within 180 days.

When the relinquished property is sold, Capital 1031 directs the EAT to transfer title to the Third Party Buyer. All excess funds are paid directly to the taxpayer.

In some states, transfer tax on the sale of real estate can add additional costs to a reverse exchange transaction. Please consult with our team of experts in order to plan for your reverse exchange transaction.

Our team of transactional attorneys have the experience in handling all of the issues that will arise from a reverse exchange. There are few, if any, companies that have over 25 years of combined experience in this area. Our clients include other exchange companies that refuse to handle reverse exchanges.

Our clients are looking for a high level of expertise in order to ensure that they will have the guidance and stewardship needed to complete these complex transactions. Most of our clients are dealing with potential tax liability in excess of $200,000.00 when they commit to perform a reverse exchange. Our reputation for handling reverse exchanges has grown within the real estate industry, as we perform these transactions for clients throughout the United States.

Reverse exchanges require a significant amount of consultation with the clients and their tax advisors, and our transactional system enables us to direct all of the parties as to their responsibilities.

A Reverse Back-Leg exchange transaction is actually a restructured simultaneous or deferred exchange that occurs when the taxpayer, through use of a Qualified Intermediary (“Capital 1031”), and under the terms of an Exchange Agreement, transfers title to the relinquished property to a third party Buyer, and acquires title to the replacement property from Capital 1031. Prior to the actual “exchange”, however, the replacement property is “parked” for a period of up to 180 days. This parking arrangement is accomplished through a written agreement called a Qualified Exchange Accommodation Agreement (“QEAA”).

When the replacement property is ready to close, the taxpayer enters into a parking arrangement with an Exchange Accommodation Titleholder (“EAT”) pursuant to a QEAA. Under the terms of the QEAA, the EAT borrows funds from the taxpayer to acquire the replacement property from the Seller. The EAT “parks” the replacement property until the exchange is ready to occur, or for a period not to exceed 180 days.

The taxpayer has 45 days from the day the replacement property is parked with the EAT to identify the relinquished property (or properties) being sold. This identification is submitted to the EAT. When the relinquished property sale to a third-party Buyer is ready to close, the “exchange” actually begins, and the taxpayer enters into an Exchange Agreement with Capital 1031.

Therefore, Capital 1031 has the right to demand that the EAT simultaneously transfer the replacement property to Capital 1031 by a direct deed to taxpayer. Since the EAT must repay the taxpayer for funds it borrowed to “purchase” the replacement property, and since Capital 1031 receives net sales proceeds from the Relinquished Property sale, Capital 1031, as Assignee of the QEAA, can direct that any net funds be paid directly to taxpayer to cancel the debt that the EAT owes to the taxpayer (under the terms of the QEAA which has been assigned to Capital 1031).

In some states, transfer tax on the sale of real estate can add additional costs to a reverse exchange transaction. Please consult with our team of experts in order to plan for your reverse exchange transaction.