Buying a new property before the old property sells Personal property build-to-suite (truck & chassis) Sell more than 1 property and aggregate the funds Typical Reverse Exchange

George’s favorite Exchange was an "acquire first, reverse exchange". Sounds complicated, but it’s not. Our client had negotiated the purchase of a significant new property but had been unable to sell a piece of existing property in time to do the deal. Rather than jeopardize the purchase, we created a single purpose entity (SPE), in this case, a Massachusetts trust, to acquire the new (parked) property.

Edmund & Wheeler, Inc. was engaged to create the new entity, hold the property until the old property was sold and the proceeds are available to acquire the "parked" property. The Exchangor funded the purchase with his own and other bank resources. Once the old property was sold, the new property was deeded to the Exchangor. Since it is not permissible to own the old and new property at the same time, this strategy accomplished the Exchangor’s desired outcomes, again without capital gains tax. [List of examples]

Over the years we have had a lot of fun creating entities for the acquisition of real property for clients. Typically, the new property is parked while the existing property is sold. We have just performed this task for a client with personal property. Personal property exchanges are limited to items with certain standard industry general asset classification codes. In our practice, we have handled major pieces of equipment such as log skidders and bulldozers, commercial fishing boats, and laundry equipment.

Our current project is to acquire a truck and chassis and have it retrofitted with drilling equipment. Once it is ready to be placed in service, the client’s existing "like-kind" truck mounted drilling equipment will be sold and the proceeds used to acquire the new equipment from our build-to-suit entity. The same identification rules apply as in a real property exchange and the timing remains the same; identify in 45 days and acquire within 180 days. [List of examples]

 

One of the many misconceptions is that you have to match the relinquished (sold) property with the new replacement (purchase) property. Because it is not necessary to match the property for quality or quantity, Exchangors may sell more than one old property and aggregate the funds to make the purchase of one new property.

We have represented clients that have sold as many as seventeen properties in one exchange and acquired one new property. By consolidating the investment the Exchangor benefits from simplified accounting, management and maintenance. It is important to match your "strike price", that is, the sale price of the old property less closing expenses to the purchase price of the new property plus the acquisition costs. The goal is to always go even or up in value. To the extent that you don’t accomplish this, you may be subject to capital gains tax. [List of examples]

Our client found the perfect investment property and had not sold any of its existing properties. So, not to worry! We created a single purpose entity to acquire the desired new property and parked it until buyers of the existing properties could be found. The time frames in a reverse exchange are the same as a forward exchange, 45 and 180 days but the client priced the existing properties aggressively to make sure that they were sold in the 180 day time period.

In this situation, we determined that at least two of the client’s three properties would have to sell to get the right match so that provided more flexibility for determining which properties would be sold. As the properties were sold, the funds flowed to us as Qualified Intermediary and ultimately used to reduce the note provided by the client for the acquisition of the new property.  [List of examples]