Definition
A 1031 exchange where you acquire the replacement property before selling the relinquished property, instead of the typical reverse order.
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In a reverse exchange, you buy the new property first and then sell the old property, allowing more time to find the right replacement. The IRS permits this if the new property is held in trust or by a qualified intermediary during the exchange period. You have 180 days total from the date you acquire the replacement property to identify and complete the relinquished property sale. Reverse exchanges are more complex and expensive but provide more flexibility.
Pro Tip
Use qualified intermediaries experienced in reverse exchanges to ensure IRS compliance.
Example
An investor found the perfect replacement property before selling their existing one, so they arranged a reverse exchange with a qualified intermediary holding the new property.