Updated July 28, 2015
Reverse 1031 Exchange Chicago Illinois
A reverse exchange is the same basic concept as a regular exchange, only the purchase of the new property occurs before the sale of the old. It’s a trade of real property where the capital gain is deferred.
Let’s say you have a factory building where your basis, you initially paid $300,000 for it. You’re selling the property for $1,000,000. If you trade the difference, or roughly $700,000 into another piece of real property in an acceptable period of time, then you will not have to pay capital gains taxes. You are postponing the gain in the trade, and the money isn’t going to you. When you ultimately sell the property without a trade, the gain will be taxed using the original basis and capital gains tax will be assessed. In a reverse exchange, the exchange trustee purchases the new property on your behalf and waits for the sale of the old. When the sale of the first property occurs, the exchange is made. The trade simply happens in reverse.
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Chris Amundson is the President of Accounting Solutions Ltd., a full service public accounting firm of Certified Public Accountants and Enrolled Agents handling the bookkeeping, accounting, tax preparation, and audit representation needs of Businesses, Estates, Trusts, and Upper Income Individuals.