Types of Exchanges

Delayed Exchange
This is the most common type of exchange. The central requirement in this exchange is that the replacement property is identified within the identification period (45 days) and acquired by the end of the exchange period (180 days).

Reverse Exchange
This exchange is the flip side of the delayed exchange. In this case, the exchanger acquires the replacement property before the relinquished property is sold. The IRS requires that an entity called the “Exchange Accommodation Titleholder” (EAT) facilitate this type of exchange. The EAT will usually form a special purpose entity to take title of the parked property. A reverse exchange must be completed within 180 days after the Holding Entity acquires the parked property. Additionally, the Exchanger must identify one or more relinquished properties within 45 days after the holding entity acquires the replacement or “parked” property.

Build-To-Suit Exchange
This is also referred to as a construction or improvement exchange. This type of exchange allows the exchanger the opportunity to use all or part of the exchange funds for construction of the replacement property and still accomplish a tax deferred exchange. This is a variation of the delayed or reverse exchange that allows the Exchanger more flexibility and provides the Exchanger with the opportunity to either renovate an existing improved property or even construct a new improvement on raw land. In the most common build-to-suit exchange, the Exchanger sells the relinquished property in a delayed exchange and then acquires the replacement property after it has been improved with the exchange funds from the relinquished property. It is important to note that any improvements made to the replacement property after the Exchanger takes title are considered to be “goods and services”. These goods and services are not considered like-kind property and are taxable as boot as are any remaining exchange funds. Also, to be included in the exchange, any improvements to the property must occur before the Exchanger takes title.

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Property photos shown here are being provided for educational purposes only, to illustrate the different property types available in the real estate market. These photos are not intended to represent any particular type of TIC offering nor are they intended to represent any current or future TIC offerings.