What is a Reverse 1031 Exchange?
A reverse 1031 exchange is very similar to a normal 1031 exchange. You are actually purchasing the upleg before you sell the downleg. You will hold title to 2 properties at the same time since you are buying first but the IRS will not allow it. Since you cannot hold both titles at the same time, the accommodator can take title to one.
You have 2 options:
1. You can allow the accommodator to buy the upleg first. You will transfer the title to the accommodator at the point of sale.
2. You're going to transfer the title from your downleg before you close on your upleg. The accommodator is officially on the title for the downleg when you are holding the upleg.
You are moving money from your downleg to your upleg but backwards. You are purchasing the upleg and when you sell your downleg, all the money from your downleg has to go directly to your upleg. The accommodator will put that money directly into the principal or pay you back for money out of pocket. Reverse 1031 exchanges are more expensive because it takes more time. The accommodator has to take title to one of the properties. It works when you know the property you want to buy.