Introduction

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
In a nonsimultaneous exchange, the relinquished property and the replacement property are not transferred concurrently.
A nonsimultaneous exchange is a deferred exchange if a taxpayer first transfers relinquished property and subsequently receives replacement property.

A deferred 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

A nonsimultaneous exchange is a reverse exchange if a taxpayer first acquires replacement property and later transfers relinquished property.

Simultaneous Exchange
An exchange in which both properties close the same day.

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
An exchange that takes place with time (a day up to 180 days) in between the initial sale and subsequent acquisition.

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.

Reverse Exchange
The Reverse Exchange procedure allows an investor to acquire real estate now, when an excellent investment may be available, and to sell his property later, when a better price might be obtained.

The future sale would be tax deferred. This procedure greatly expands the ability of the investor to take advantage of changes in the marketplace and to improve his investment position. The use of a reverse exchange has been limited in the past due to a misunderstanding of what it really is.

In some instances, the replacement property must come into the taxpayer's possession or control before the conveyance of the relinquished property. This situation is referred to as a "reverse exchange." 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.

In a deferred exchange under IRC §1031(a)(3), the taxpayer first transfers relinquished property and then acquires replacement property. For various reasons (planned or unplanned), a taxpayer may need to reverse the order and acquire replacement property before disposing of relinquished property. Acquisition of replacement property before disposition of relinquished property is often called a "reverse exchange."

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).

Improvement (or Construction) Exchange
The intermediary acquires and retains ownership to the replacement property while construction or improvements are made, upon completion of which, the intermediary trades the improved property for the property the exchangeer is relinquishing.

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Personal Property Exchange
The basic statutory requirements for a like-kind exchange of property are set forth in IRC §1031; The Internal Revenue Code provides that neither gain nor loss is recognized when property held for productive use in trade or business or for investment is exchanged solely for like-kind property. (click for more)

Although IRC §1031 generally defers the recognition of gain or loss on the exchange of like-kind property, a taxpayer who receives money or other property in addition to the like-kind property recognizes gain, but not loss, to the extent of the sum of the money and the fair market value of the other property received, Losses are not recognized even if the taxpayer receives money or other non-like-kind property in the exchange. If however, a taxpayer gives up non-like-kind property (other than cash) together with the like-kind property, loss is recognized to the extent that the adjusted basis of the non-like-kind property transferred exceeds its fair market value (just as loss would be recognized if the non-like-kind property were sold).

Practitioners must also 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.

Multi-Property and Multi-Party
May involve exchange out of one property into more than one property, out of several properties into one larger property, or investors owning property together trading into separately owned properties.

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