# Reverse 1031 Exchange: How NNN Buyers Close Before Selling

Source: https://netleaseworld.com/blog/reverse-1031-exchange-nnn-buyers
Published: 2026-11-12T16:28:00.732581+00:00
Category: 1031 Exchange
Keywords: reverse 1031 exchange, 1031 exchange, exchange accommodation titleholder, net lease buyers

## TL;DR
A reverse 1031 exchange lets you acquire a replacement net lease property before you sell your relinquished property. Under Rev. Proc. 2000-37, an exchange accommodation titleholder holds title, you sign a written agreement within five business days, identify what you will sell within 45 days, and finish everything within 180 days.

## Article
The best net lease properties rarely wait for your sale to close. A well-located drive-thru, a long-term corporate lease, or a property that fits your buy box exactly can come up while your relinquished property is still in escrow, still being marketed, or not even listed yet. In a standard 1031 exchange you have to sell first and buy second. A reverse 1031 exchange flips that order, so you can lock up the replacement property now and sell afterward.

This guide explains how a reverse exchange works, the IRS safe harbor that governs it, where net lease buyers most often get tripped up, and how to decide whether the extra cost and complexity are worth it for your deal.

What Is a Reverse 1031 Exchange?

In an ordinary deferred exchange under Internal Revenue Code Section 1031(a)(3), you transfer your relinquished property first. You then have 45 days to identify replacement property and must receive it by the earlier of day 180 or the due date, including extensions, of your tax return for the year of the sale.

A reverse exchange is the opposite sequence: the replacement property is acquired before the relinquished property is transferred. The deferred-exchange regulations at 26 CFR § 1.1031(k)-1 do not cover that sequence. When those regulations were finalized in 1991, the preamble said they do not apply to these "reverse-Starker" exchanges.

You also cannot simply buy the new property in your own name and call it an exchange later. You cannot exchange property with yourself. The workable answer is a "parking" arrangement, in which a third party holds title to one of the properties until the other side of the exchange is ready.

The IRS Safe Harbor: Rev. Proc. 2000-37

In 2000 the IRS issued Revenue Procedure 2000-37, which created a safe harbor for parking arrangements called a qualified exchange accommodation arrangement (QEAA). If you meet its requirements, the IRS treats the parking party, called the exchange accommodation titleholder (EAT), as the owner of the parked property for federal income tax purposes. That lets the property later qualify as replacement or relinquished property in your exchange.

The main requirements in section 4.02 of the revenue procedure are:

1. Title held by the EAT. The EAT must hold "qualified indicia of ownership" from the day it acquires the property until the exchange is completed. That can be legal title, or the membership interests in a single-member LLC that is disregarded for tax purposes and holds title. The EAT cannot be you or a disqualified person, such as your agent.
2. Bona fide intent. When the EAT takes title, you must genuinely intend for the property to be part of a 1031 exchange.
3. Written agreement within five business days. No later than five business days after the EAT takes title, you and the EAT must sign a qualified exchange accommodation agreement. It must say the EAT is holding the property for your benefit to facilitate an exchange, and that both parties will report it consistently on their tax returns.
4. Identify within 45 days. No later than 45 days after the EAT acquires the replacement property, you must properly identify the relinquished property you plan to sell. The same identification rules used in forward exchanges apply, including the option to identify alternative and multiple properties.
5. Finish within 180 days. No later than 180 days after the EAT takes title, the parked property must be transferred to you as replacement property, or sold to an unrelated buyer as relinquished property.
6. Combined time limit. The combined period that the relinquished and replacement properties are held in a QEAA cannot exceed 180 days.

The IRS instructions for Form 8824, the form used to report a like-kind exchange, point taxpayers to this same safe harbor for exchanges in which the replacement property is transferred to the EAT before you give up your old property.

Exchange Last vs. Exchange First

Rev. Proc. 2000-37 describes two common ways to structure the parking arrangement:

• Parking the replacement property ("exchange last"). The EAT buys the new net lease property and holds it. When your relinquished property sells, the sale runs through your qualified intermediary, and the replacement property is then transferred from the EAT to you to complete the exchange. This is the structure most NNN buyers use, because it leaves your existing property in your hands while you market it.
• Parking the relinquished property ("exchange first"). The EAT acquires the replacement property and immediately exchanges it with you for your relinquished property. You take title to the new property right away, and the EAT holds your old property until it can be sold to a third party. This can suit a buyer whose lender wants the borrower on title to the new property at closing.

Which structure works better depends on your financing, your lender's requirements, and how long you expect your sale to take. Your qualified intermediary and tax counsel should make that call with you.

Forward vs. Reverse Exchange at a Glance

| Feature | Forward (deferred) exchange | Reverse exchange under Rev. Proc. 2000-37 |
|---|---|---|
| Order of events | Sell first, then buy | Buy first, then sell |
| Who holds title in between | Qualified intermediary holds sale proceeds | Exchange accommodation titleholder holds a property |
| Identification deadline | 45 days after the sale | 45 days after the EAT takes title |
| Completion deadline | Earlier of day 180 or the tax return due date, including extensions | 180 days after the EAT takes title |
| Written agreement | Exchange agreement with the qualified intermediary | QEAA signed within five business days of the EAT taking title |
| Main hurdle | Finding a replacement in time | Funding the purchase before your sale closes |

What the Safe Harbor Allows

Section 4.03 of the revenue procedure lists arrangements that do not knock a deal out of the safe harbor, even if the terms are not what unrelated parties would negotiate. Among them:

• The EAT can also serve as your qualified intermediary for the exchange.
• You can lend or advance funds to the EAT, or stand behind a loan made to it, so it can buy the property.
• The EAT can lease the parked property to you, and you can manage the property or supervise improvements.
• You and the EAT can sign purchase and sale agreements, including puts and calls, effective for no more than 185 days from the date the EAT acquires the property.

The IRS also said that parking transactions can be done outside the safe harbor, but it offered no comfort about how those will be treated. For most investors, staying inside the safe harbor is the point of using one.

The Rev. Proc. 2004-51 Limit: You Cannot Park What You Already Own

In 2004 the IRS narrowed the safe harbor with Revenue Procedure 2004-51. The safe harbor does not apply to replacement property if you owned that property at any time during the 180-day period ending on the date it is transferred to the EAT. The Form 8824 instructions restate this rule.

The revenue procedure also points to court decisions holding that swapping real estate you own for improvements built on land you already own does not meet Section 1031. For net lease investors, that means you cannot sell a property to yourself through an EAT, and you should be very careful with any plan that involves building on a parcel you already hold. Build-to-suit reverse exchanges exist, but they need specialized counsel.

What This Means for Buyers

A reverse exchange solves a timing problem, but it adds cost and a financing hurdle. The EAT has to buy the replacement property before your sale produces any exchange proceeds. In practice the purchase is usually funded with cash you advance, a loan made to the EAT, or both, and many lenders are less familiar with lending to a single-purpose EAT entity than to a buyer directly. Start that conversation with your lender before you sign a purchase contract.

Net lease diligence still applies in full. Review the lease, the tenant's financials, any corporate parent backing the lease, estoppel certificates, and any right of first refusal the tenant may hold. Our NNN due diligence checklist (https://netleaseworld.com/blog/nnn-due-diligence-checklist-27-items-verify-before-closing) and step-by-step guide to buying NNN property (https://netleaseworld.com/blog/how-to-buy-nnn-property-step-by-step-sourcing-to-closing) walk through those items. During the parking period the EAT is the landlord of record, so make sure the tenant notices, rent flow and expense reimbursements are spelled out in the QEAA and the lease assignment documents.

What This Means for 1031 Exchangers

The 180-day clock in a reverse exchange starts when the EAT takes title, not when you sell. That means your relinquished property has to be under contract and closed inside that window. Price it to sell, line up your buyer early, and identify alternatives within 45 days if you own more than one property you could sell.

If you are planning a standard forward exchange instead, our 1031 exchange 45-day and 180-day playbook (https://netleaseworld.com/blog/1031-exchange-into-nnn-45-day-180-day-timeline-playbook) and the 1031 exchange guide for NNN investors (https://netleaseworld.com/learn/1031-exchange-nnn-guide) cover the forward timeline. You can also model your exchange with the NLW 1031 exchange calculator (https://netleaseworld.com/tools/1031-exchange) and browse 1031 exchange properties (https://netleaseworld.com/1031-exchange-properties) or all net lease listings (https://netleaseworld.com/deals). Every listing is subject to availability and needs to be verified before you rely on it.

If you own the property you would be selling and want to know what it could bring, start with our seller page (https://netleaseworld.com/sell).

Work With a Net Lease Team That Knows 1031 Timing

TD Commercial Group has closed 1,250+ deals across 43 states. If you are considering a reverse exchange, tell us what you need before you write an offer. Share your investor criteria (https://netleaseworld.com/investor-criteria) and we will match you with net lease properties that fit your timeline, tenant and financing requirements.

Sources

• IRS, Rev. Proc. 2000-37 (Internal Revenue Bulletin 2000-40, page 308) (https://www.irs.gov/pub/irs-irbs/irb00-40.pdf)
• IRS, Rev. Proc. 2004-51 (https://www.irs.gov/pub/irs-drop/rp-04-51.pdf)
• IRS, Instructions for Form 8824 (https://www.irs.gov/instructions/i8824)
• 26 U.S. Code § 1031 (Cornell LII) (https://www.law.cornell.edu/uscode/text/26/1031)
• 26 CFR § 1.1031(k)-1 (eCFR) (https://www.ecfr.gov/current/title-26/chapter-I/subchapter-A/part-1/section-1.1031(k)-1)
• IRS, Like-kind exchanges: Real estate tax tips (https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips)

This article is general information, not tax or legal advice. Consult your CPA, tax attorney, and qualified intermediary about your specific exchange.

Not investment advice. Verify all underwriting independently.

## FAQ
Q: What is a reverse 1031 exchange?
A: It is a like-kind exchange in which you acquire the replacement property before you sell the relinquished property. Because you cannot exchange property with yourself, an exchange accommodation titleholder holds title to one of the properties under a qualified exchange accommodation arrangement until the exchange is completed.

Q: How long do I have to sell my old property in a reverse exchange?
A: Under Rev. Proc. 2000-37, you must identify the relinquished property within 45 days after the EAT takes title to the replacement property, and the exchange must be completed within 180 days after that transfer. The combined parking period for both properties cannot exceed 180 days.

Q: Can I do a reverse exchange on a property I already own?
A: Not inside the safe harbor. Rev. Proc. 2004-51 says the safe harbor does not apply to replacement property you owned at any time during the 180-day period ending on the date it is transferred to the exchange accommodation titleholder.

Q: Can I get a loan on the replacement property in a reverse exchange?
A: Often, yes. The safe harbor allows you to lend or advance funds to the EAT or to stand behind a loan made to it. Lender comfort varies, so confirm early whether your lender will lend to the EAT's entity and on what structure.

Q: Is a reverse exchange the same as an improvement or build-to-suit exchange?
A: No. A build-to-suit exchange also uses an EAT, but improvements are made while the EAT holds title. It has extra limits, including the rule that you cannot exchange into improvements on land you already own. It needs specialized tax counsel.

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