Reverse Exchange


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.

BREAKING DOWN '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.

  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. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
  5. Safe Harbor

    1. A legal provision to reduce or eliminate liability as long ...
  6. Like-Kind Exchange

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