How To Receive An Extra 180 Days When Performing An Exchange

Under the following circumstances a seller of a business (income-producing property) or investment held property has the ability to pay no capital gains tax when disposing of his property. This is possible through what’s called a real estate exchange, through Section “1031” of the Internal Revenue Code. 

One of the requirements in order to receive this favorable tax savings is that you dispose of a relinquished property and acquire a re­placement property all within a 180 day period known as the “exchange period”. 

With the recent “Reverse Revenue Proce­dure #2000-37”, our government has created the opportunity for a taxpayer looking to take advantage of the “best kept secret In real estate” and receive an additional 180 days to complete his trans­action under certain conditions.

Example: The taxpayer wants to achieve a “reverse exchange” which means that the replacement property is acquired before the taxpayer disposes of the relinquished property. An “exchange accommodation titleholder” is brought into the transaction to acquire legal title of the replacement property in order for the transaction to be structured properly as a “reverse exchange”. In this type of an ex­change there is the need for an “exchange accommodation titleholder” to acquire legal title of the replacement property and as with a normal deferred exchange there is also a need for a “qualified intermediary”. The services of both of these professionals are needed to accomplish a reverse exchange.

Once the exchange accommodation title­holder goes into legal title for the replacement property, the taxpayer (seller) now has 180 days to dispose of the relinquished property.  Keep in mind that the taxpayer can never have legal title to both the relinquished property and replacement property at the same time. The taxpayer must identify the relinquished property being disposed of, within forty-five (45) days for the reverse exchange to qualify for I.R.S. purposes.

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