Reverse Exchange

AAA

DEFINITION of 'Reverse Exchange'

A type of property exchange wherein the replacement property is acquired first, and then the current property is traded away. Reverse exchanges were created in order to help buyers who found a new property that they would like to purchase before they were able to trade in a current property.

The opposite of a reverse exchange is a deferred exchange.

INVESTOPEDIA EXPLAINS 'Reverse Exchange'

Standard like-kind exchange rules usually do not apply to reverse exchanges. The IRS has created a set of safe-harbor rules that allow for like-kind treatment, as long as either the current or new property is held in a qualified exchange accommodation arrangement (QEAA).

Reverse exchanges apply only to Section 1031 property. Section 1245 or 1250 property is ineligible for this type of transaction.

RELATED TERMS
  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Corporate Trade Exchange - CTX

    A monetary transfer system used by corporations and governmental ...
  3. Section 1245

    A part of the IRS code stating that depreciable property that ...
  4. Like-Kind Exchange

    A tax deferred exchange that allows for the disposal of an asset ...
  5. Safe Harbor

    1. A legal provision to reduce or eliminate liability as long ...
  6. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
RELATED FAQS
  1. How is market value determined in the real estate market?

    Anyone who has ever tried to purchase or sell a home has probably heard a lot about the property's fair market value, or ... Read Full Answer >>
  2. What is the difference between adjusted and regular funds from operations?

    While regular funds from operations measures the cash flow generated by the operations of a real estate investment trust ... Read Full Answer >>
  3. What are examples of typical leasehold improvements?

    Typical leasehold improvements include partitioning a large, open space into smaller, more structured areas such as dressing ... Read Full Answer >>
  4. How much of the global economy is comprised of the real estate sector?

    The commercial and residential real estate industry generated an estimated $3 trillion in 2014, with some 35% of sector revenue ... Read Full Answer >>
  5. What is the process for a building owner depreciating leasehold improvements in a ...

    As long as the building owner is the person or entity that provides leasehold improvements, then the owner can depreciate ... Read Full Answer >>
  6. How can I invest in tax liens?

    An individual can invest in tax liens by identifying available liens and then participating in auctions where property tax ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Active Trading

    Trade Properties To Keep The Taxman At Bay

    Like-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
  3. Taxes

    Avoid Capital Gains Tax On Your Home Sale

    If you have property to sell and want to avoid capital gains tax, a Section 1031 exchange may be the answer.
  4. Stock Analysis

    The Logic Behind Sears' REIT

    Learn what strategy Sears employed with the divestment of its 266 real estate properties to a separate real estate investment trust.
  5. Home & Auto

    Before You Buy a Home for Your Child: Read This

    It is certainly generous. It can even be advantageous to both of you. But beware of the pitfalls.
  6. Home & Auto

    Are Home Inspections Worth It? - Price vs. Value

    If you’re wondering whether home inspection is worth the investment, the following information will help you decide.
  7. Investing

    Before You Invest in a Rental House with a Friend

    Investment property has advantages, but before you purchase a rental house with a pal, it’s smart to know what the challenges might be.
  8. Home & Auto

    When Is the Best Time for You to Buy a House?

    Making what is likely to be the single most expensive purchase of your lifetime shouldn’t be done on a whim.
  9. Investing

    Where Are Real Estate Stocks Heading?

    We summarize five economic reports that investors should monitor monthly to keep them informed of where real estate and its related stocks are heading.
  10. Home & Auto

    10 Things Your Real Estate Broker Won't Tell You

    Whether you're selling a home or buying one, go in with eyes wide open when you're working with a broker.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!