Reverse exchanges

A standard 1031 exchange runs in one order: sell first, then buy within the deadlines. But real deals do not always cooperate. The perfect replacement property comes on the market now, while your property to sell is still months from closing. A reverse exchange solves that by flipping the order, you acquire the replacement first and sell the old one afterward, without losing 1031 treatment. It is the answer to a timing mismatch, and it costs more and involves more moving parts than a forward exchange.

Why you cannot just buy first on your own

The obvious question is why you need a special structure at all. Why not just buy the replacement, then sell the old property and call it an exchange. The answer is that you cannot own both properties at the same time and still have an exchange. The moment you hold title to both, there is nothing to exchange, you just bought one property and later sold another, two taxable events.

The IRS solved this with a safe harbor, Revenue Procedure 2000-37, that permits a “parking arrangement.” Instead of you owning both, a third party temporarily holds title to one of the properties, so you never own both at once. That third party is called an exchange accommodation titleholder, or EAT.

You cannot own both the old and new properties at once and still have an exchange, so a reverse exchange uses a third party to park one property until the other sells.

How the parking arrangement works

There are two ways to park, and the EAT holds title throughout.

In the more common exchange-first (or exchange-last replacement) structure, the EAT acquires and parks the replacement property. You provide the funds, usually cash plus financing, since you have not sold yet and have no proceeds, and the EAT holds the new property while you work to sell your old one. Once the old property sells, a qualified intermediary runs a normal exchange and the parked replacement is transferred to you, completing the deferral. In the alternative structure, the EAT parks the relinquished property instead.

Either way, the same deadlines apply, with the clock starting at parking: within 45 days of the EAT acquiring the parked property, you must identify the property to be relinquished, and within 180 days the whole thing must be unwound and completed. The parking period cannot exceed 180 days, and the arrangement (the qualified exchange accommodation agreement) must be signed within 5 business days of the EAT taking title.

In the usual structure the EAT parks the replacement property, bought with your cash and financing, until your old property sells, with the same 45 and 180-day deadlines running from the parking date.

The cost and complexity trade

A reverse exchange buys you timing freedom at a real price. Because you acquire the replacement before selling, you need the capital or financing to close the purchase up front, without the sale proceeds in hand, which is the biggest practical hurdle. The EAT structure adds legal and accommodation fees well above a standard exchange, and lenders have to be willing to finance a property held by an EAT, which not all will. For a large commercial deal, the incremental cost is trivial against the deferred gain; for a small exchange, it can be a meaningful fraction of the benefit.

The payoff is that you never lose the replacement property to the calendar. When the right property appears and will not wait for your sale to close, the reverse exchange is often the only way to capture it and still defer the tax.

The bottom line

• A reverse exchange lets you buy the replacement property before selling the old one.
• You cannot own both at once, so an exchange accommodation titleholder parks one property.
• Usually the EAT parks the replacement, bought with your cash and financing, until the old property sells.
• The 45 and 180-day deadlines apply from the parking date, and parking cannot exceed 180 days.
• It costs more, requires up-front capital, and needs a lender willing to finance a parked property.

For the timeline these deadlines mirror, read timeline rules. For building on the parked property, see improvement exchanges. For the full picture, start at the 1031 exchanges and exit planning hub.

Last verified August 2026.