Types of 1031 Exchanges

Four types of 1031 Exchanges accommodate most investment scenarios.

Simultaneous Exchange

A Simultaneous Exchange occurs when two properties are exchanged simultaneously. This can happen when two properties are swapped, property for property, which is called a two-party exchange. This can also happen when a property is sold and the replacement property is purchased simultaneously. To successfully defer taxes with a 1031 exchange, a Qualified Intermediary must facilitate the exchange.

Forward Exchange

The most common type of exchange, the Forward Exchange, occurs when a property is sold (Relinquished Property) and another property is purchased (Replacement Property) within 180 days following the sale of the Relinquished Property. For a 1031 Forward Exchange, the sale proceeds must be held by a Qualified Intermediary between the sale of the Relinquished Property and the subsequent purchase of the Replacement Property.

Construction Exchange

Construction Exchanges, or Build-to-Suit Exchanges, occur when the taxpayer uses the funds from the sale of the Relinquished Property to construct improvements on the Replacement Property. The property on which the improvements are constructed cannot be held by the taxpayer and must be held by a third party called an Exchange Accommodation Title Holder, Affiliated 1031, until either the improvements are complete or until the end of the 180 Exchange Period, after which the title holder is deeded the Replacement Property with the improvements. Due to its complexity, please contact Affiliated 1031 to learn more about Construction Exchanges.

Reverse Exchange

In a Reverse Exchange, the Replacement Property is purchased before the sale of the Relinquished Property. The Replacement Property must be held by an Exchange Accommodation Title Holder, Affiliated 1031, until the sale of the Relinquished Property, which must take place within 180 days following the purchase of the Replacement Property. Due to its complexity, please contact Affiliated 1031 to learn more about Reverse Exchanges.