Reverse 1031 Exchange Guide for California Investors: Buy First, Sell Later

Quick Take: A reverse exchange “parks” title with an EAT so you can buy now and sell within 180 days—crucial in competitive markets.

Reverse Exchange Basics

Under IRS Rev. Proc. 2000‑37, an Exchange Accommodation Titleholder (EAT) temporarily holds title to either the replacement or relinquished property. This avoids owning both at the same time while you meet §1031’s rules.

Key Players

You (Exchanger) — must meet 45/180‑day deadlines
Qualified Intermediary (QI) — structures and escrows
EAT (parking LLC) — holds title up to 180 days
Bridge/Private Lender — finances the parked property

Timeline (Safe Harbor)

Day 0    EAT acquires (parks) replacement
Day 45   You identify the relinquished property
Day 180  You close the sale of the relinquished property

Financing a Parked Asset

Banks may balk while an EAT is on title. Common solutions: bridge loans, seller carryback, or cash now + refinance after transfer.

California‑Specific Notes

Documentary Transfer Tax: Some counties may assess DTT twice (seller→EAT and EAT→you). Budget or negotiate.
FTB 3840: If you later move the asset out of CA, file annually to track deferred CA‑source gain.
Community Property: Ensure both spouses sign exchange assignments to avoid vesting issues.

Cost Snapshot (Example $3M Buy / $3M Sell)

Fee	Typical Range
EAT/parking setup	$3,500–$6,000
QI reverse fee	$3,000–$5,000
Extra escrow/title	$2,000–$4,000
Bridge interest (≈11%, 3 mo)	≈ $82,500 per $3M
Potential second DTT	Varies by county

Case Study: Duplex → NNN Retail

Day 0: EAT acquires CVS with bridge + cash.
Day 33: Duplex listed.
Day 45: Identify relinquished property.
Day 120: Duplex sale closes; bridge paid off.
Day 121: EAT transfers to you. Gain deferred.

Common Pitfalls & Fixes

Pitfall	Mitigation
Missing 180 days	Pre‑list, build schedule buffer
Debt mismatch	Refinance after exchange closes
Contract assignment gaps	Add “and/or assigns”; formal EAT assignment
Lender rejects EAT	Vet bridge/private lenders early

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