A reverse 1031 exchange may be used when a taxpayer needs to purchase the new property (the “replacement” property) prior to the sale of the property they already own (the “relinquished” property).

Circumstances or market conditions may arise that encourage a taxpayer to use a reverse 1031 exchange structure, such as tight inventory or finding the perfect replacement property that has a short deadline to purchase.

There are two ways to structure a reverse 1031 exchange, depending on the needs of the taxpayer. Regardless of which structure is used, the 1031 exchange must be completed within the 180-day timeline allowed.