Reverse 1031 Exchange. Not for the faint of heart!

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What is a Reverse1031 Exchange?



If you find a property you would like to acquire before you sell your current property, a Reverse 1031 Exchange can save you thousands of dollars in capital gains tax. What is the IRS's Position on Reverse 1031Exchanges? The IRS issued Revenue Procedure 2000-37[Rev Proc] in September 2000 that gives taxpayers guidance on Reverse 1031Exchanges, A "Safe Harbor" Reverse introduces a new entity into the exchange process-an Exchange Accommodation Titleholder (EAT]. An EAT is a single member limited liability company [LLC) established by a Qualified Intermediary (QI] for use specifically in a reverse exchange. The EAT takes title to, or parks, a property for the taxpayer and holds it until the taxpayer is able to sell the old property, The Rev Proc places a time restraint on the taxpayer-the EAT must convey the title on or before 180 days from the date of the EAT's purchase. When the EAT parks the new property, Rev Proc requires the taxpayer to identify their old property on or before 45 days from the EAT's purchase. Our reverse exchange specialists will guide you through this process; The Rev Proc also refers to the fact that some reverse exchanges will fall outside of the "Safe Harbor." A "Traditional" Reverse will follow the guidelines outlined in Rev Proc, with the exception of the 180-day requirement. Typically, construction exchanges fall into this category because they require more time to complete the exchange. Before the reverse process begins, we will review with you the two types of reverse exchanges so you have the information necessary to select the reverse exchange that is best suited to your needs. Financing Reverse Exchanges



Financing the purchase of the new property as part of a reverse exchange is a critical component of the process. Financing issues can be detailed and involved. Call a title company, CPA or Real Estate attorney for specific information. How will IXG Protect Me in a Reverse Exchange? Our reverse exchange procedures are based on IRS rulings and court cases that set precedence on the reverse exchange process. Our reverse exchange specialists remain current on the latest developments in reverse exchange tax law.



Step 1: They Form a New LLC to Hold (Park] Your Property The newly created LLC will be your EAT and will hold only your property, After the exchange, it will be dissolved and never used again, This protects you from any potential liability and assures you that your property is legally protected.



Step 2: They Secure Your Investment For your protection, we will grant you or your lender a security interest in the property as collateral for the funds loaned to the EAT.



Step 3: We Enter into a Legally Binding Contract with You We give you, and only you, the legal right/ option to purchase the property from the EAT, This gives you the assurance that we can't keep your property or sell it to someone else.



Reverse Exchange Timeline



Purchase - Contract Stage.



Negotiate your purchase contract for the new property. “The Buyer on the contract should be you "and/or assigns”. Include language in the contract to establish your intent to do a tax-deferred exchange. . Select a title or escrow company and/or closing agent to handle the closing of the transaction. Notify them that you are participating in a Reverse 1031 Exchange.



Purchase - Financing Stage.



Negotiate a loan with your lender on behalf of the EAT. The loan is usually secured by the new property. The EAT signs the Note and the Deed of Trust. Your lender may require you to guarantee the loan. Sometimes the lender also takes a security interest in your old property. Be sure that there is an assumption clause in the Deed of Trust allowing you to assume the loan made to the EAT. Negotiate with your lender for a clause that allows re-amortization of the loan if there is a single substantial pay down of the loan in excess of a stated percentage.



Purchase - Closing Stage



Inform agent when you have a signed purchase contract. Information needed includes:



1 A copy of the contract.



2 The phone number, name and reference number for the closing agent or title company.



3 Your mailing address, phone and fax numbers



4 Sale price of the property being purchased



They will contact the closing agent or title company and prepare the Qualified Exchange Accommodation Agreement [QEAA] between you as the Exchanger, and the newly-formed EAT as the accommodation titleholder, as required by Rev Proc 2000-37. Ensure that your lender will forward the funds needed to close on the purchase. The QEAA and other documents will be forwarded to you or to the closing agent, depending on timing and the location of the closing. The purchase closes, and the title to the property is recorded in the name of the EAT. If possible, one of our representatives will be present at closing to obtain signatures on the QEAA and other documents. Identify the Relinquished Property. You have exactly 45 days including weekends and holidays from the closing of the new property to identify the property you are going to sell. You have 180 days from the date of closing to close on your sale in order to be within the "Safe Harbor" provided by Rev Proc.



You will get a notice with the closing date of the new property, the expiration date of the 45-day identification period, and the expiration date of the 18G-day closing date, and a form to notify us of the location of the old property to be sold. You must mail or fax the Property Identi­fication Form to closing agent to be received before midnight of the 45th day from the closing of the new property. Sale - Contract Stage. Negotiate the contract to sell the old property. . Include language in the contract to establish your intent to do a tax-deferred exchange. . Identify a title company or closing agent to handle the closing of the transaction. Sale - Closing Stage Inform us when you have a signed sales con­tract. Information needed includes:



1 A copy of the contract



2 The phone number, name and reference number for the closing agent or title. company



3 Sale price of the property being sold. The sale proceeds are transferred to IXG to hold until you purchase the new property.



Transfer the Replacement Property



We will coordinate with the Title Company or closing attorney to prepare the closing and transfer documents.



What Does a Reverse Exchange Cost?



A reverse exchange will add costs to your exchange because additional legal and ac­counting work is required. An EAT must be set up to hold and manage your property, and the IRS also requires the EAT to file i's own tax returns. Reverse exchanges are complex and detailed and require legal and accounting expertise. Fees for reverse exchanges begin at about $3500 and depend on the complexity, size and scope of the transaction.



For details and Experts that can help you with this, go to;



www.SunnySpotRealty.net or Email or send email to: SunnySpotRealty@swfla.rr.com



For help in these areas you must have hired Joseph Beauvais owner Sunny Spot Realty Inc. as “Buyers Agent” ,signed notice of such, got financing in order and will buy within 90 days.



If you go to my web site http://www.sunnyspotrealty.net/EBooks
You may download a free zip file for easier reading.

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