Reverse Exchanges - Parking Transactions
Found a very desirable
replacement property for a 1031 Exchange, but not yet sold your property? Or are
you worried that with a typical 1031 Exchange, you might have to settle with a
less desirable property? Then a Reverse Exchange, also known as known as Safe
Harbor Reverse Exchange, might be just what you are looking for, because now you
can essentially "park" the property with an Exchange Accommodation Title-Holder
(EAT). Setup by a Qualified Intermediary to take and hold title to the
replacement property, setup a Single Purpose Entity (SPE) for the property,
while we find a buyer for your relinquished property.
Parking Transactions
Revenue Procedure
(Rev. Proc.) 2000-37 addresses "parking" transactions. See
sections 2.05 and 2.06 of Rev. Proc. 2000-37. Parking transactions typically are
designed to "park" the desired replacement property with an accommodation party
until such time as the taxpayer arranges for the transfer of the relinquished
property to the ultimate transferee in a simultaneous or deferred exchange. Once
such a transfer is arranged, the taxpayer transfers the relinquished property to
the accommodation party in exchange for the replacement property, and the
accommodation party transfers the relinquished property to the ultimate
transferee. In other situations, an accommodation party may acquire the desired
replacement property on behalf of the taxpayer and immediately exchange that
property with the taxpayer for the relinquished property, thereafter holding the
relinquished property until the taxpayer arranges for a transfer of the property
to the ultimate transferee. Rev. Proc. 2000-37 provides procedures for
qualifying parking transactions as like-kind exchanges in situations in which
the taxpayer has a genuine intent to accomplish a like-kind exchange at the time
that the taxpayer arranges for the acquisition of the replacement property and
actually accomplishes the exchange within a short time thereafter.
The Treasury (Department of the Treasury) and the Service (Internal Revenue Service (IRS)) have determined that it is in the
best interest of sound tax administration to provide taxpayers with a workable
means of qualifying their transactions under Section 1031 in situations where
the taxpayer has a genuine intent to accomplish a like-kind exchange at the time
that it arranges for the acquisition of the replacement property and actually
accomplishes the exchange within a short time thereafter. Accordingly, this
revenue procedure provides a safe harbor that allows a taxpayer to treat the
accommodation party as the owner of the property for federal income tax
purposes, thereby enabling the taxpayer to accomplish a qualifying like-kind
exchange. This revenue procedure provides a safe harbor under which the Internal
Revenue Service will treat an exchange accommodation titleholder as the
beneficial owner of property for federal income tax purposes if the property is
held in a "qualified exchange accommodation arrangement" (QEAA), as defined in
section 4.02 of the revenue procedure provided below.
Qualified Exchange Accommodation Arrangements (QEAA)
In general, the
Service (Internal Revenue Service (IRS)) will treat an exchange accommodation
titleholder as the beneficial owner of property for federal income tax purposes
if the property is held in a QEAA. Property held in a QEAA may, therefore,
qualify as either "replacement property" or "relinquished property" (as defined
in § 1.1031(k)-1(a)) in a tax-deferred like-kind exchange if the exchange
otherwise meets the requirements for deferral of gain or loss under § 1031 and
the regulations thereunder. Qualified Exchange Accommodation Arrangements. For
purposes of this revenue procedure, property is held in a QEAA if all of the
following requirements are met:
- Qualified indicia of ownership of the property is held
by a person (the "exchange accommodation titleholder") who is not the taxpayer
or a disqualified person and either such person is subject to federal income
tax or, if such person is treated as a partnership or S corporation for
federal income tax purposes, more than 90 percent of its interests or stock
are owned by partners or shareholders who are subject to federal income tax.
Such qualified indicia of ownership must be held by the exchange accommodation
titleholder at all times from the date of acquisition by the exchange
accommodation titleholder until the property is transferred as described in
section 4.02(5) of this revenue procedure. For this purpose, "qualified
indicia of ownership" means legal title to the property, other indicia of
ownership of the property that are treated as beneficial ownership of the
property under applicable principles of commercial law (e.g., a contract for
deed), or interests in an entity that is disregarded as an entity separate
from its owner for federal income tax purposes (e.g., a single member limited
liability company) and that holds either legal title to the property or such
other indicia of ownership;
- At the time the qualified indicia of ownership of the
property is transferred to the exchange accommodation titleholder, it is the
taxpayer's bona fide intent that the property held by the exchange
accommodation titleholder represent either replacement property or
relinquished property in an exchange that is intended to qualify for
nonrecognition of gain (in whole or in part) or loss under Section 1031;
- No later than five business days after the transfer of
qualified indicia of ownership of the property to the exchange accommodation
titleholder, the taxpayer and the exchange accommodation titleholder enter
into a written agreement (the "qualified exchange accommodation agreement")
that provides that the exchange accommodation titleholder is holding the
property for the benefit of the taxpayer in order to facilitate an exchange
under Section 1031 and this revenue procedure and that the taxpayer and the
exchange accommodation titleholder agree to report the acquisition, holding,
and disposition of the property as provided in this revenue procedure. The
agreement must specify that the exchange accommodation titleholder will be
treated as the beneficial owner of the property for all federal income tax
purposes. Both parties must report the federal income tax attributes of the
property on their federal income tax returns in a manner consistent with this
agreement;
- No later than 45 days after the transfer of qualified
indicia of ownership of the replacement property to the exchange accommodation
titleholder, the relinquished property is properly identified. Identification
must be made in a manner consistent with the principles described in Section
1.1031(k)-1(c). For purposes of this section, the taxpayer may properly
identify alternative and multiple properties, as described in Section
1.1031(k)-1(c)(4);
- No later than 180 days after the transfer of qualified
indicia of ownership of the property to the exchange accommodation
titleholder, (a) the property is transferred (either directly or indirectly
through a qualified intermediary (as defined in Section 1.1031(k)-1(g)(4))) to
the taxpayer as replacement property; or (b) the property is transferred to a
person who is not the taxpayer or a disqualified person as relinquished
property; and
- The combined time period that the relinquished property and the
replacement property are held in a QEAA does not exceed 180 days.
Does a Safe Harbor Reverse Exchange, sound promising to
you? We can help navigate the waters to a Safe Harbor Reverse
Exchange.We are here to help you, we can work with you to
find and locate a NNN replacement property, or the Commercial Real Estate
property you would like to exchange your property for, engage and work with a
Qualified Intermediary and an Exchange Accommodation Titleholder, and market and
sell your property. Let's start by listing your property on our website and all
of the commercial real estate databases, let's review the commercial real estate
that's currently available, and we can mass email the commercial agents with the
property criteria we are looking for. Contact us today, at
Saul@PotomacCP.com and (703)
675-7278, or please go to the
Contact page
, and put in the form or inside the email, the type
of property you are looking for and the address of the property you would like
us to market and sell for you. Were here to help, and want to work for you and
with you, and navigate the waters to a successful Safe Harbor Reverse Exchange.
Not only once, but again, and again, deferring on recognized taxable gains, and
deferring them into larger and more profitable properties, again and again.
Contact us today.
