Home >
Services >
Reverse
Reverse Exchange
Structures
A reverse exchange may be structured in
two different manners, as described below.
Exchange First: EAT Acquires Relinquished Property
In this
structure, you transfer the relinquished property to the
exchange accommodation titleholder (EAT) at the time
that you acquire the replacement property. A deed
or other conveyance document for the relinquished property must be prepared by a local attorney or title
company transferring the property to the EAT. You also
provide us with the purchase and sale agreement for the replacement property. We finalize
the exchange documentation and also execute a non-recourse
note secured by a pledge of the membership interests in
the EAT to give you security in the property. You should check to be sure the
transfer of the relinquished property to the EAT does
not violate a "due on sale" provision contained in any
loan documents related to the relinquished property.
The
EAT takes title to or “parks” the relinquished
property. The EAT executes a “triple net” lease
so that you collect rents and pay mortgages, taxes and
utilities on the relinquished property during the
period that the EAT holds title. You should maintain the liability and
property insurance, naming the EAT as “additional insured.”
The EAT is required to report the ownership of
the relinquished property on its federal tax return.
Therefore, you
must treat the relinquished property as owned by the EAT on
your tax return and you cannot take depreciation or
property tax deductions during the parking period.
Under the IRS safe
harbor, you have 180 days from
the date the EAT acquires the relinquished
property to close the sale of the relinquished property
to a third party buyer.
top
Exchange Last: EAT Acquires Replacement Property
In this
structure, the EAT acquires the replacement property and
holds title until you find a buyer for the relinquished
property. When the relinquished property is sold
to the buyer, the exchange occurs and the EAT
transfers the replacement property to you in exchange
for the relinquished property. You provide us with
the
purchase
and sale agreement for the replacement property. We then
finalize the exchange documentation. We also execute a
non-recourse note to you secured by a pledge of the
membership interests in the EAT to give you a security
interest in the property. If you are
obtaining third party financing, any loan to us must be
non recourse, but you may personally guarantee the loan. Most single family residential lenders will not lend to an EAT and you
will need to find alternate forms of financing if the
replacement property is a single family residence.
You
have 45 days from the EAT's acquisition of the
replacement property to identify your relinquished
property. If you have more than one possible
relinquished property, you may also
identify alternative relinquished properties. We will
send you a follow up letter regarding the identification
of the relinquished property.
The EAT takes
title to or “parks” the replacement property. The
EAT executes a “triple net” lease so that you
collect rents and pay mortgages, taxes and utilities on
the replacement property during the period that the EAT
holds title. The
EAT will also enter into a construction contract
for any improvements and will appoint you as the project
manager for the construction. You should obtain liability and property insurance,
naming the EAT as “additional insured.”
The EAT reports the ownership of the replacement
property on its federal tax return. Therefore, you must treat the replacement property as
owned by the EAT on your tax return and you
cannot take depreciation or property tax deductions
during the parking period.
Under the IRS safe harbor, you have 180 days from the date the
EAT acquires
the replacement property to close the sale of the
relinquished property to a third party buyer and take
title to the replacement property.
top
|
