WHAT IS A PARKING Exchange

In the past, what’s called a reverse Exchangewas dreaded by most professionals involved in the Exchangearena and avoided at all costs.  Today, individuals known as qualified intermediaries who are involved in the structuring of real estate Exchanges, have a better comfort level in structuring these unique transactions. This last resort strategy is fast becoming a preference for a growing number of real estate investors who are interested in Paying No Capital Gains Tax when disposing of business or investment held property.

Reverse Exchanges were dreaded by most professionals

When individuals want to take advantage of this “Best Kept Secret In Real Estate”, the order of events is straightforward. The taxpayer (seller) first must dispose of what’s called the relinquished property and then acquire what’s called the replacement property.  

But what happens when market forces turn the order of events around? When the usual sequence of events is disrupted, many investors and business owners still may be able to reach their objectives through what’s called a reverse Exchange.  In a reverse Exchangethe taxpayer looking to take advantage of this favorable tax savings strategy completes the Exchangetransaction in the reverse order, meaning that an Exchangeaccommodation titleholder (which is a separate service that the qualified intermediary needs to provide), acquires legal title of the new replacement property based on the new (Revenue Procedure 2000-37) and warehouses the property until the taxpayer disposes of the relinquished property which must happen within one hundred and eighty days.

Most reverse Exchanges today, follow the traditional plain vanilla order of events by using a parking Exchangeinstead of a reverse Exchangeformat. The Exchangeaccommodation titleholder takes title to the taxpayers relinquished property allowing the taxpayer to then go directly into legal title of the replacement property which works better for financing purposes for the new property and the taxpayer. The time frame of one hundred and eighty days remains the same in which the taxpayer must produce a buyer for the relinquished property that is being warehoused by the Exchangeaccommodation title holder .Because the sequence is in order, the reverse label no longer is accurate and the Exchangetransaction might more aptly be called a parking or warehouse Exchange. Given the increasing acceptance of these types of Exchangetransactions, real estate agents/brokers, accountants/CPAs, and attorneys need to understand the basics of parking and reverse Exchanges when working with their clients. A parking Exchangecould save a deal that might be lost due to timing problems.

“A parking Exchangecould save a deal…”   

Wake-Up Item 

It is important to understand that any time a taxpayer is structuring a parking or reverse Exchangetransaction, the taxpayer can never be into legal title of both the relinquished and replacement properties at the same time. That’s the reason for the added service called the Exchangeaccommodation titleholder that the qualified intermediary needs to provide today.  

Despite the fact that a parking or reverse Exchangeis complex and more expensive, the acceptance of this type of Exchangecontinues to grow. This type of an Exchangecan work when the typical order of events in an Exchangeis reversed.

Acceptance of the reverse Exchangeis growing. 

When considering any type of Exchangetransaction, always consult with a professional qualified intermediary and make sure that the qualified intermediary is seasoned in providing the necessary additional service as an Exchangeaccommodation titleholder when dealing with parking and reverse Exchanges.