Are you looking to buy a new property but haven't been able to sell your existing one? Or perhaps it would make more sense for you to keep your existing property while you make improvements to your new property? Do you want to defer the taxes on the sale of your existing property? If so, then you may be a candidate for a reverse like-kind exchange.
In a reverse like-kind exchange, a taxpayer acquires replacement property before his intended relinquished property is sold. The taxpayer must hire an intermediary under qualified exchange accommodation arrangements (QEAA) to facilitate the transaction. The qualified intermediary will contract an exchange accommodation titleholder (referred to as an "EAT"); this must be done prior to the acquisition of the new property. The EAT then takes the title to the "parked" property to complete the exchange.
Under Rev. Proc. 2000-37, the IRS will recognize the EAT as the titleholder to the parked property until the relinquished property is sold. The EAT is generally set-up as a single member limited liability company whose sole purpose is to park property; and cannot be owned by the taxpayer, any agent of the taxpayer or a related party to the taxpayer. Once the EAT is set up, the property to be relinquished must be identified on or before the 45 days after the transfer; no later than 180 days after the relinquished property is transferred either directly or indirectly through the qualified intermediary or is transferred to a person who is not the taxpayer or disqualified; and the combined time period that the relinquished and replacement property are held in the QEAA does not exceed 180 days.
A reverse like-kind exchange can potentially save thousands in capital gains taxes. If you feel you might benefit, contact your local UHY LLP professional, or visit us on the web at www.uhy-us.com.
By Brent Jones, CPA