Forward (Delayed) Exchange
Sell your investment property, then purchase qualifying replacement property. You generally have 45 days to identify replacement property and up to 180 days to complete the exchange.
Learn About Forward Exchanges ↓Purvis & Company Exchange
Types of 1031 Exchanges: Forward, Reverse, Improvement & More
Many 1031 exchanges follow a familiar sequence: sell qualifying investment or business-use real estate, then acquire qualifying replacement real estate. But sometimes you need to buy first, make improvements, or coordinate several properties.
Purvis & Company Exchange helps investors understand their options and get started with the right exchange process.
The best time to discuss an exchange is before your first closing. Different exchange types can require different arrangements.
Four Common Ways to Structure a 1031 Exchange
The biggest question is usually whether you plan to sell your existing property before or after buying the next one.
Reverse Exchange
Find the property you want to buy before you've sold your current investment property. A special arrangement may make it possible to purchase first and sell afterward.
Learn About Reverse Exchanges ↓Improvement Exchange
Use a specially planned exchange to acquire property and make qualifying improvements before receiving the completed replacement property.
Learn About Improvement Exchanges ↓Simultaneous Exchange
Sell one investment property and purchase the replacement property at approximately the same time, with both transactions properly coordinated.
Learn About Simultaneous Exchanges ↓Most Common Exchange Type
Forward (Delayed) 1031 Exchange: Sell First, Then Buy
This is the most common type of 1031 exchange. You sell an investment property and use the exchange process to buy another qualifying investment property.
Before your sale closes, the exchange paperwork and Qualified Intermediary arrangements are put in place.
Instead of receiving the sale proceeds yourself, the funds are handled through the exchange arrangement until they're needed for your replacement property.
Once your sale closes, you generally have 45 days to identify replacement property and up to 180 days to complete the exchange, subject to the applicable tax return deadline.
How a Forward Exchange Works
1. Sell Your Investment Property
2. Identify Your Next Property
3. Purchase the Replacement Property
The Qualified Intermediary handles exchange documentation and funds according to the exchange agreement.
Buy First, Sell Later
Reverse 1031 Exchange: Buy Before You Sell
Sometimes you find the perfect replacement property before you've sold the one you currently own.
A reverse exchange may make it possible to move forward with that purchase without waiting for your existing property to sell.
In a reverse exchange, simply taking title to the new property in your own name before selling the old property generally does not qualify as a standard deferred exchange. A properly structured parking arrangement is typically used.
An Exchange Accommodation Titleholder (EAT) generally parks title to the replacement or relinquished property under a qualifying exchange accommodation arrangement. Safe-harbor reverse exchanges have their own 45-day and 180-day requirements.
Reverse exchanges usually require more preparation, additional paperwork, and a financing plan. Contact us before purchasing the new property.
How a Reverse Exchange Can Work
1. Set Up the Exchange
2. Secure the New Property
3. Sell Your Existing Property
4. Complete the Exchange
This is a simplified illustration. Actual ownership, financing, and transfer arrangements depend on the exchange structure.
Build or Renovate
Improvement (Build-to-Suit) 1031 Exchange
What if the replacement property you want to buy needs construction or improvements before it meets your investment goals?
An improvement exchange may allow eligible construction or renovation costs to be included as part of the replacement property acquired through the exchange.
For example, an investor might sell a rental property and purchase another investment property that needs substantial improvements.
These exchanges often use a separate entity to hold the property while improvements are made.
The construction budget, title-holding arrangement, and deadlines must be planned before the exchange. Generally, only improvements completed and included in the real estate received by the taxpayer within the applicable exchange period can count toward replacement property value. Later improvements ordinarily do not count.
Sell and Buy Together
Simultaneous 1031 Exchange
A simultaneous exchange happens when the sale of your existing investment property and the purchase of your replacement property occur at substantially the same time.
Coordinated Closings
The sale and purchase have to be planned together so the transaction meets exchange requirements. This can involve coordinating two separate closing teams.
Advance Planning Still Matters
Closing both properties on the same day doesn't automatically create a valid 1031 exchange. The proper documents and arrangements must still be in place.
Other 1031 Exchange Situations Worth Knowing About
Some transactions don't fit neatly into the four common categories. These situations may still be worth exploring.
Multiple-Property Exchanges
Sell one property and buy several, or sell multiple properties and buy one or more qualifying replacement properties. Special identification and timing rules apply.
Partial Exchanges
You may be able to complete an exchange even if you don't reinvest all your proceeds. However, some of the gain may be taxable.
Delaware Statutory Trusts (DSTs)
Certain Delaware Statutory Trust (DST) beneficial interests can qualify as replacement real estate when the trust satisfies applicable tax rules. A DST is a potential ownership structure, not a different exchange deadline or method. Investment risks, liquidity, eligibility, and suitability require independent review.
More Complex Reverse Exchanges
Some situations may require special reverse exchange arrangements outside the usual IRS safe-harbor approach. These need specialized review before proceeding.
Related-Party Exchanges
Exchanging property with family members or related businesses can involve additional restrictions and tax consequences. These transactions need extra planning.
Exchanges Involving LLCs or Trusts
The same taxpayer generally must sell and purchase the properties. When LLCs, trusts, or other entities are involved, their tax treatment matters.
These are special situations, not necessarily separate exchange types. Not every structure is available or suitable for every investor.
Know the Important Exchange Deadlines
For a traditional forward exchange, two deadlines are especially important. They generally begin when the property you're selling closes.
Identify Replacement Property
Generally, you must identify potential replacement property in writing within 45 calendar days after selling your current property.
Complete the Exchange
Generally, you must complete the replacement property purchase within 180 calendar days, or by your applicable tax return deadline, including extensions, if that date comes first.
The 45 days are part of the 180 days, not an additional period. Reverse and improvement exchanges have their own detailed timing requirements. Certain disaster-related relief may also apply.
How Purvis & Company Exchange Can Help
You don't need to know every exchange rule before contacting us. Start with the property you're selling, what you're considering buying, and your closing timeline.
Getting Your Exchange Started
We can help gather the initial information needed to review your proposed exchange, explain the next steps, and coordinate with the exchange team.
Purvis & Company 1031, LLC , an Accruit-owned company, provides Qualified Intermediary services under its exchange agreements. Purvis & Company Title separately provides title, escrow, and closing coordination.
Your CPA and legal advisors should help determine whether the transaction qualifies and how it should be structured.
Frequently Asked Questions About Exchange Types
What is the most common type of 1031 exchange?
The forward or delayed exchange is the most common. You sell your current investment property first, then buy qualifying replacement property within the exchange deadlines.
Is a forward exchange the same as a delayed exchange?
Yes. The terms are commonly used to describe the same basic process: sell first, then purchase the replacement property.
Can I buy a property before selling my existing investment?
Possibly. A reverse exchange may allow you to secure a replacement property before selling your existing property. The arrangement must be established correctly before the purchase.
Can I use exchange funds to build or renovate property?
An improvement exchange may allow certain construction or renovation costs to count toward replacement property acquired through the exchange. Special ownership and timing rules must be followed.
Can I exchange one property for more than one property?
Yes, a qualifying exchange can involve multiple replacement properties. However, there are limits on how replacement properties can be identified.
Do I have to reinvest all the money from the sale?
Not necessarily to complete a partial exchange. But keeping cash or receiving other nonqualifying value may create taxable gain. Your CPA can help evaluate the amount.
Can I use a 1031 exchange to purchase a primary residence?
Generally, no. Section 1031 is intended for qualifying investment and business-use real estate, not property purchased primarily for personal use.
Who handles the exchange funds?
Exchange proceeds are held and disbursed pursuant to the applicable Qualified Intermediary agreement. Purvis & Company 1031, LLC, an Accruit-owned entity, provides QI services for exchanges conducted under its agreements.
Can you assist with exchanges outside Florida?
Yes. Purvis & Company Exchange accepts exchange inquiries involving qualifying real estate throughout the United States, subject to applicable transaction requirements.
How do I get started?
Complete our online exchange inquiry, email exchange@purvisco.com, or schedule a consultation. Contact us before your property sale closes whenever possible.
Planning a 1031 Exchange? Let's Talk About Your Options.
Whether you're selling first, buying first, improving a property, or coordinating several investments, Purvis & Company Exchange can help you get started.
Questions? Email exchange@purvisco.com
Qualified Intermediary services are provided by Purvis & Company 1031, LLC, a wholly owned subsidiary of Accruit LLC. Purvis & Company Exchange is the customer-facing service and is not itself the Qualified Intermediary. Reverse and improvement exchanges may involve additional entities and agreements. Services depend on transaction details and applicable requirements. This information is educational and is not tax, legal, or investment advice. Consult your independent tax and legal advisors before proceeding.
