Reverse 1031 Exchange Rules, Deadlines and Costs

A reverse 1031 exchange is an exchange in which you buy the replacement property before you sell the property you are giving up. Because you cannot exchange into property you already own, an exchange accommodation titleholder holds title to one of the two properties until the sale closes. Under the IRS safe harbor in Rev. Proc. 2000-37, the property you will sell must be identified within 45 days after the titleholder takes title to the new property, and the parked property must be transferred within 180 days after that same day.

Why a reverse exchange needs a titleholder

Section 1031(a)(3) and the deferred exchange regulations are written for an investor who sells first. When the regulations were issued in 1991, Treasury and the IRS stated that they do not apply when the replacement property is acquired before the relinquished property is transferred.

No rule bars you from owning both properties at once. The problem is that you cannot exchange property for property you already own, so if you buy the new property in your own name and later sell the old one, the new property cannot be the replacement property for that sale.

The answer is parking: someone else holds the new property in the meantime. Under Rev. Proc. 2000-37, as modified by Rev. Proc. 2004-51, the IRS treats the titleholder as the owner for federal income tax purposes if the property is held in a qualified exchange accommodation arrangement, even if you fund and manage it. The safe harbor settles only who owns the parked property. The exchange must still meet every other section 1031 rule, including the rules on cash and debt relief (boot).

Two ways to structure a reverse exchange

The titleholder can park either property.

The six requirements

Property is held in a qualified exchange accommodation arrangement only if all six requirements are met:

1. An eligible titleholder. The titleholder is not you or a disqualified person, such as your agent or a related party, and is subject to federal income tax (or, for a partnership or S corporation, more than 90 percent owned by partners or shareholders who are). It must hold title, or another qualified form of ownership such as the interest in a single-member LLC that holds title, from its purchase until the arrangement ends.
2. Intent. When the titleholder takes title, you have a bona fide intent that the property be part of a section 1031 exchange.
3. A written agreement within five business days. Within five business days after the titleholder takes title, you and the titleholder sign a qualified exchange accommodation agreement stating that it holds the property for your benefit to facilitate an exchange and is treated as the beneficial owner for all federal income tax purposes. Both of you must report consistently with it.
4. Identification within 45 days. No later than 45 days after the titleholder takes title to the new property, the property you will sell must be properly identified under the principles of the forward exchange identification rules. You may identify alternative and multiple properties, as the guide to the identification rules explains.
5. Transfer within 180 days. No later than 180 days after the titleholder takes title, the parked property must be transferred to you as replacement property, directly or through a qualified intermediary, or, if your old property is parked, to a buyer who is not you or a disqualified person.
6. A combined limit. The total time both properties are held in the arrangement cannot exceed 180 days, so parking one and then the other does not create a second period.

Both deadlines start the day the titleholder takes title

The 180 days do not start when you identify the property you will sell. Example: if the titleholder takes title on May 1, the property you will sell must be identified by June 15, and the titleholder must transfer the new property to you by October 28.

When the forward exchange deadlines also apply

If your old property sells through a qualified intermediary before the titleholder transfers the new property to you, that step is a deferred exchange, and the forward exchange deadlines also apply. Unless you receive the new property within 45 days after the sale, it must be identified as replacement property by then, and it must be received by the earlier of 180 days after the sale or the due date, including extensions, of your tax return for the year of the sale, as the guide to the 180-day rule explains. For a sale late in the year, ask your tax adviser whether to extend your return.

Property you owned in the last 180 days is outside the safe harbor

Under Rev. Proc. 2004-51, the safe harbor does not apply to replacement property you owned at any time in the 180 days ending on the day the titleholder takes title, as the guide on buying property you already own explains. The IRS has also said that exchanging real estate for improvements on land you already own does not qualify. Building on a parked property is covered in the guide to improvement exchanges.

What happens if a requirement is missed

If any requirement is not met, for example the parked property is not transferred within 180 days, the safe harbor does not apply, and ownership is decided under the general rule that whoever has the economic benefits and burdens of ownership is the owner. The IRS position is that if you, rather than the titleholder, had the benefits and burdens of owning the new property before you sold your old property, there was no exchange.

Parking outside the safe harbor is not automatically invalid. In Estate of Bartell v. Commissioner, 147 T.C. 140 (2016), the Tax Court upheld an exchange in which a facilitator held title for 17 months, in a transaction that began before the safe harbor existed. In Action on Decision 2017-06, the IRS said it will not follow that decision for reverse exchanges outside the safe harbor. If your exchange cannot be finished within 180 days, discuss the risk with your tax adviser before the titleholder buys.

How the purchase is paid for

The new property is paid for before the old one sells, so the money comes from you or a lender. Rev. Proc. 2000-37 permits these arrangements, even on terms that are not arm's length:

• You may lend or advance funds to the titleholder, or guarantee its loans and other obligations.
• The titleholder may lease the property to you, and you may manage it, supervise improvements, or act as contractor.
• You and the titleholder may agree on puts and calls at fixed or formula prices for up to 185 days from its purchase.
• The titleholder may also serve as your qualified intermediary if it meets those rules.
• If your old property is parked, you and the titleholder may settle any difference between its estimated value and its sale price.

The IRS may still recast a payment under these arrangements as a fee to the titleholder to reflect the real economics, and the revenue procedure leaves open how value settlement payments are taxed and whether a titleholder may be barred from claiming depreciation. Raise both with your tax adviser.

Lenders

Some lenders will not lend when a titleholder's company holds title, or will require your guarantee. Parking your old property instead lets you take title to the new property and borrow in your own name, though the titleholder then takes title to your old property, which raises its own transfer tax, insurance and liability questions. Settle the structure with the lender first, because a later switch uses up days.

Costs and drawbacks

• Higher fees. BlueLion charges a flat $7,500 for a reverse exchange, compared with $1,000 for a delayed exchange. See pricing.
• Carrying costs. You bear the new property's loan, insurance and taxes until the old one sells.
• Transfer taxes. Section 1031 does not defer state and local transfer and recordation taxes, and a titleholder adds at least one transfer that state law may tax.
• Pressure to sell. If the market cools, you may have to cut your price to sell within 180 days. Identifying more than one property you could sell is permitted.

Reverse exchange or forward exchange

The alternative is a standard forward exchange, also called a delayed exchange, explained in the guide to how a 1031 exchange works. You sell first through a qualified intermediary, identify replacement property within 45 days, and receive it by the earlier of 180 days after the sale or your return due date, including extensions. If you can sell first, a forward exchange is simpler and costs less.

Before you sign a purchase contract

1. Ask your lender whether it will lend while a titleholder holds title.
2. Line up the purchase money: your own funds, a loan you guarantee, or both.
3. Engage the titleholder in time for it to take title at the purchase closing. With BlueLion, that starts on the start my exchange page.
4. Have your tax adviser review the plan before the titleholder buys.

Common questions

Can I do a reverse 1031 exchange with Maryland property?

Yes. The federal rules are the same for property in Maryland, including Anne Arundel County, as anywhere else. Maryland adds recordation and transfer taxes, which section 1031 does not defer. The titleholder's purchase is taxed like any recorded purchase, and Maryland also taxes the transfer of a controlling interest (more than 80 percent) in an entity whose real property is at least 80 percent of its assets and worth at least $1,000,000, which can reach an assignment of the titleholder's LLC. Confirm with your settlement attorney how each transfer will be taxed before it closes, and see the guide to Maryland transfer and recordation taxes.

Does the titleholder have to be in Maryland?

No federal rule requires it. BlueLion's office is in Glen Burnie, Maryland, and it handles exchanges for investors anywhere in the United States, with an attorney staffed on every exchange.

Primary sources

• 26 U.S.C. 1031 (like-kind exchanges)
• Treas. Reg. 1.1031(k)-1 (deferred exchanges)
• Rev. Proc. 2000-37 (reverse exchange safe harbor)
• Rev. Proc. 2004-51 (property the taxpayer already owned)
• IRS Action on Decision 2017-06 (Estate of Bartell)
• Md. Code, Tax-Property 12-117 (recordation tax on controlling interest transfers)
• Md. Code, Tax-Property 13-103 (transfer tax on controlling interest transfers)

This guide is general information about 1031 exchanges as of September 2026, not tax or legal advice for your transaction. BlueLion 1031 serves as a qualified intermediary and does not provide tax, legal, investment, or real estate brokerage advice.

Nicholas A. Henault, Esq.Managing Director of BlueLion 1031 and a Maryland attorney whose practice covers real estate and real estate tax planning. University of Maryland School of Law; Cornell University. Full bio · Ask a question about your exchange