Calculate Capital Gains Tax   Calculate Exchange Deadlines
	Download GES Booklet

• Simultaneous
• Delayed
• Reverse
• Improvement
• Personal Property
• Multi-Property and Multi-Party

An exchange of property can be either simultaneous or nonsimultaneous.  A simultaneous exchange is one in which the relinquished property and the replacement property are transferred concurrently, however, in a nonsimultaneous exchange; the relinquished property and the replacement property are not transferred concurrently.

The types of exchanges are listed below:

Simultaneous Exchange: The exchange of the relinquished property for the replacement property occurs at the same time.

Except in the literal exchange of deeds, little guidance is available on what constitutes a "simultaneous" exchange. In some respects, the question of whether a transaction is a simultaneous exchange was made a historical anachronism by the Tax Reform Act of 1984 which added IRC § 1031 to permit deferred exchanges, and was made even less relevant by the 1991 adoption of the final deferred exchange regulations. Although simultaneous exchanges are theoretically possible in modern practice, the deferred exchange definition in Reg §1031 ,("an exchange in which, pursuant to an agreement, the taxpayer transfers property held for productive use in a trade or business or for investment (the 'relinquished property') and subsequently receives property to be held either for productive use in a trade or business or for investment (the 'replacement property')") has the capacity to subsume the exception with the rule.

Delayed Exchange: This is the most common type of exchange. A Delayed Exchange occurs when there is a time gap between the transfer of the Relinquished Property and the acquisition of the Replacement Property.

A Delayed exchange will qualify for like-kind exchange treatment under IRC §1031 if:

• It otherwise meets the requirements for a valid simultaneous exchange; and
• It meets the additional statutory and regulatory requirements specifically applicable to deferred exchanges under IRC §1031(a)(3) and Reg §1.1031 (k)-1.

As noted in a simultaneous exchange most like-kind exchanges fit the definition of deferred exchanges under IRC §1031 and Reg §1.1031(k)–1. In a typical exchange, the taxpayer enters into a sale agreement with a buyer of the relinquished property and may or may not enter into a purchase agreement with the seller of the replacement property. Indeed, the taxpayer might not even identify the replacement property. Nevertheless, §1031 permits the taxpayer to close with the buyer, i.e., convey title to the relinquished property to the buyer, in anticipation of receipt of a replacement property. Moreover, Reg §1.1031(k)–1 provides detailed guidance on certain transactional parameters that, if followed, will permit the taxpayer to obtain like-kind exchange treatment if the replacement property is identified within 45 days after the taxpayer’s transfer of the relinquished property and the replacement property is transferred to the taxpayer within 180 days after the transfer of the relinquished property.

There are two varieties of reverse exchanges:

• In a true reverse exchange, the replacement property is actually conveyed to the taxpayer before the taxpayer's conveyance of the relinquished property; and
• In a "parking" or "accommodation" reverse exchange, either the replacement property is temporarily "parked" with an accommodation party until the taxpayer is ready to sell or the accommodation party buys the replacement property and immediately exchanges it with the taxpayer for the relinquished property, holding the latter until it is sold.

The reasons taxpayers may need or wish to explore the availability of reverse exchanges include:

• There may be unexpected delays in the taxpayer's ability to complete a transfer of relinquished property in what was in-tended to be a simultaneous or deferred exchange.
• The taxpayer may need to complete a desirable purchase before being able to market or arrange a transfer of a property that will become relinquished property in a like-kind exchange.
• By having replacement property unconditionally available for acquisition from a cooperative party immediately following disposition of a relinquished property, taxpayers avoid any risk of failing to meet the identification or exchange period requirements of IRC §1031(a)(3).

Timelines still apply to the Reverse exchange process and if considered, should be discussed well in advance with a Granite Exchange Consultant.

Certain restrictions apply and should be discussed with a Granite Exchange Consultant.

Practitioners must analyze the type of assets proposed to be exchanged. Practitioners must preliminarily ascertain whether the assets qualify for like-kind exchange treatment at all. In multiple asset exchanges, whether otherwise qualifying assets, e.g., assets not explicitly excluded from like-kind exchange treatment under IRC §1031(a)(2), are of "like-kind" to replacement assets. If the exchange involves undeveloped land, for example, the attendant analysis is relatively simple; but if the transaction involves the exchange of businesses, the analysis can be quite complex.

The first litmus test to apply is the separation of real and personal property assets involved in the exchange. Many exchanges predominantly involving real estate still require consideration of the rules governing multiple assets because personal property is usually involved.

All exchange transactions are subject to time limits, which are set forth in the Treasury Regulations.  Any consideration to perform a tax deferred exchange should be discussed with the investors tax and/or legal counsel as well as a Granite Exchange Consultant.