A reverse exchange is a way to purchase your replacement property prior to completing the sale of your relinquished property. This type of exchange is more costly and more complicated than a standard delayed exchange. The reverse exchange is the perfect vehicle to use, however, if you have located the purchase property and can’t wait for the other property to sell.

There are two types of reverse exchanges:

Exchange First – In this scenario, the accommodator "purchases" the property from you so that you can exchange into your desired property. In order to complete this type of exchange, you need to have the funds available for the accommodator to use to buy the property from you. You then have the same 180-day time frame to complete the purchase of your replacement property.

Exchange Last – In this scenario, the accommodator "purchases" your replacement property from the seller and holds it until you sell your relinquished property. You must provide the accommodator funding to purchase the property from the seller. A recent IRS Revenue Procedure set up "safe-harbor" guidelines for this type of exchange. You now have 45 days to identify the property you plan to sell and 180 days to sell the property and purchase the replacement property held by the accommodator. Exchanges set up outside the "safe-harbor" guidelines are possible but may not be as safe. The "exchange last" scenario is often used by individuals who plan to improve a piece of raw land prior to exchanging into the property.