Important Considerations
  • Your exchange funds are never commingled with the funds of other exchangors. A separate, FDIC insured bank account is opened to hold your exchange proceeds during the exchange period.
Make the most of your equity position.
Types of Exchanges

In the world of tax deferred exchanges there are a number of unique variations.

Simultaneous Exchange

The simplest form of an exchange. You sell your existing property and purchase a replacement property at the same time…the escrows close on the same day. This could be a case of you trading your property to another owner for their property. This is a rare occurrence as you would have to find a seller who has complementary needs to yours. The more typical simultaneous exchange has you closing escrow on the property you are relinquishing and closing escrow on your replacement property on the same day. These also happen infrequently because of the difficulties in coordinating two escrows to close on the same day.

Deferred (Starker) Exchange

This is, by far, the most common form of an exchange transaction. You sell your property today (the relinquished property) and close escrow on a replacement property within 180 days. This is called a Starker exchange because of the 1979 ninth circuit court case T.J. Starker vs U.S. where the court determined that like kind exchanges need not be simultaneous to be tax free. Thank you Mr. Starker!

Reverse Exchange

This is a more complex transaction than the deferred or simultaneous exchange. In this transaction the replacement property is acquired before the relinquished property is sold. This is complex because you cannot take title to the replacement property before you sell the property you currently own. This transaction creates a new player in the exchange transaction, the Exchange Accomodator Titleholder, or EAT. The EAT acts as an interim titleholder for either the relinquished or replacement property depending on the circumstances. IRS Revenue Procedure 2000-37 establishes the safe harbor requirements for a reverse exchange.

The added complexity of these transactions adds costs and requires more planning than other exchange types. Why would you incur these costs? Often you aren’t planning on selling your property but you find an opportunity for other qualifying real property that is just too good to pass up but you have to make the deal quickly. Your ability to find a sweet deal on property that meets your needs may make it worth your while to enter into a reverse exchange transaction. Acacia Exchange Services is able to act as your EAT. Call us to discuss.

Construction / Improvement / Build-to-Suit Exchange

In this type of transaction you want to replace your current property but your desired replacement property is not of sufficient value to shelter your potential capital gain. However, you can make improvements to existing structures, make site improvements, or add new structures to the potential replacement property that will increase its cost sufficiently so you can defer the gain on the property you are selling. In form this works similarly to the reverse exchange. You cannot take title to the replacement property during the construction period. Instead there is an interim titleholder during the construction period. At the earlier of construction completion or 180 days, title passes to you just as it would in a typical deferred exchange. Acacia Exchange Services is able to meet your needs in a construction/improvement exchange. Call us to discuss.

Personal Property Exchanges

Typically, tax deferred exchanges are considered for real estate only. In fact, IRC §1031 allows for the exchange of other types of business use property and there are many instances of exchange transactions. Sales of large pieces of business equipment such as heavy construction machines can have substantial tax implications. IRC §1031 can offer a way of deferring a tax hit when replacing your business equipment. One caveat, the types of replacement property allowed in these exchanges is much more restrictive than real estate exchanges. For example, exchanges of livestock aren’t merely restricted to the same species. In order to qualify for exchange treatment livestock must be the same species and gender! Give us a call to discuss your potential exchange transaction.