Reverse Exchange Identification

A reverse exchange allows an investor to acquire the replacement property before the relinquished property has been sold, reversing the order of a typical delayed exchange, and it exists precisely for the situation many Baltimore, Maryland investors face when a strong replacement property becomes available and there is no realistic way to wait for the relinquished property to close first without losing the opportunity. Because Section 1031 does not permit an investor to hold title to both the relinquished and replacement properties simultaneously and still qualify for exchange treatment, reverse exchanges rely on a safe harbor structure known as parking arrangement, most commonly built around an exchange accommodation titleholder, sometimes shortened to EAT, that takes and holds title to one of the two properties on the investor's behalf during the transition period. In the most common structure, the EAT acquires and holds title to the replacement property while the investor arranges the sale of the relinquished property, and once that sale closes, the properties are effectively swapped into their final ownership positions and the exchange is completed. This structure operates under Revenue Procedure 2000-37 and carries its own strict timing rules that run in parallel with, but separately from, the standard forty five and one hundred eighty day periods: the investor generally has forty five days from the date the EAT takes title to identify which relinquished property will be sold as part of the exchange, and the entire parking arrangement must be unwound within one hundred eighty days of the EAT taking title. We identify replacement properties suitable for reverse exchange treatment, coordinate with exchange accommodation titleholders and qualified intermediaries to structure the parking arrangement correctly from the outset, and manage the financing complexity that reverse exchanges frequently introduce, since a lender providing acquisition financing for a property titled temporarily in an EAT's name requires specific loan documentation that not every lender is prepared to handle without guidance. Our process includes property sourcing focused on candidates where a reverse structure is warranted, documentation preparation covering the qualified exchange accommodation agreement, the parking arrangement, and coordination with the settlement agent on how proceeds and title will flow at each stage, and timeline coordination that treats the forty five day and one hundred eighty day reverse exchange clocks with the same discipline as a standard exchange, since missing either deadline unwinds the safe harbor protection entirely. Reverse exchanges typically involve higher transaction costs than a standard delayed exchange, given the additional legal structure, EAT fees, and financing complexity involved, and we walk Baltimore, Maryland investors through those costs honestly before committing to the structure so it is chosen because the situation genuinely calls for it rather than by default. Because Maryland's graduated state income tax and the county piggyback local income tax apply on top of federal capital gains tax and depreciation recapture if a reverse exchange fails to close within its own strict deadlines, careful upfront coordination between the EAT, the qualified intermediary, and the investor's lender is treated as essential from day one of the parking arrangement.