Finally: An Approved Process for Reverse Exchanges

Spring 2001, Vol 26, No 1

Abstract: Many taxpayers have been aware of the benefits of Code Section 1031, the Internal Revenue Code Section that allows taxpayers to postpone the payment of taxes if there is a qualified exchange undertaken within the bounds of this important Code Section. Many taxpayers have also been aware of the formal position from the Internal Revenue Service that has, until recently, supported the position in formal Regulations, that a taxpayer cannot have a deferred exchange under this section if the taxpayer first acquired the property desired (replacement property) and then transferred his current property (relinquished property). However, the good news is that if a taxpayer complies with a new Revenue Procedure (2000-37), a taxpayer can first acquire the replacement property and then transfer the relinquished property. This is good news for taxpayers, allowing them more flexibility with exchanges — to properly avoid being a taxpayer; i.e., the transaction can generate a deferral of tax.