Reverse Exchange
A reverse exchange lets a 1031 investor buy the replacement property before selling the relinquished one, with an accommodation titleholder parking the new asset.
Definition
A reverse exchange flips the usual order of a 1031 exchange: the investor acquires the replacement property before selling the relinquished property. Since IRS rules do not let you own both properties at once during an exchange, an exchange accommodation titleholder (EAT) takes and parks title to one of the properties.
Under the safe harbor of Revenue Procedure 2000-37, the EAT can hold the parked property for up to 180 days, during which the investor must sell the old property and complete the swap. The same 45-day identification concept applies: the relinquished property must be identified within 45 days of parking.
Reverse exchanges are useful in competitive markets where an investor finds the perfect replacement and cannot risk losing it while waiting to sell. They are more complex and costly than forward exchanges, requiring bridge financing and EAT fees, but they preserve full tax deferral when timing will not cooperate.
Key points
- Buy the replacement before selling the relinquished property
- An exchange accommodation titleholder parks one property
- Must be completed within 180 days under Rev. Proc. 2000-37
- More complex and costly, often needing bridge financing
Related terms
Jerry Baker founded Baker 1031 Investments to help exchange investors move from active property ownership into passive, institutional-quality real estate through DST, 721 exchange, mineral royalty, and Opportunity Zone strategies. He holds the FINRA Series 22 and Series 63 registrations and the Securities Industry Essentials (SIE) qualification. Read full bio →
Reviewed by the Aurora Securities, Inc. compliance team — Aurora Securities, Inc., member FINRA/SIPC. Last reviewed July 2026. Securities are offered through Aurora Securities, Inc.; Baker 1031 Investments, LLC is independent of Aurora Securities, Inc.
This glossary entry is educational and is not investment, tax, or legal advice, or an offer to sell or a solicitation to buy any security. Definitions are general and may not reflect your specific circumstances — consult your own CPA and attorney. Past performance does not guarantee future results.