Most exchanges are conducted as “deferred exchanges,” where the relinquished property is sold to one party and the replacement property is subsequently purchased from another party. However, in a reverse exchange, the taxpayer, through an intermediary and an Exchange Accommodation Titleholder (“EAT”), acquires the replacement property BEFORE selling the relinquished property. Therefore, the taxpayer must have the financial resources available to fund the purchase of the replacement property prior to the sale of the relinquished property. In a “build to suit” or “construction” exchange, the taxpayer sells property and, again using an EAT, acquires replacement property on which he will construct improvements. This type of exchange allows the taxpayer to use the exchange funds to not only buy the property but also to construct improvements. The exchange still must be completed with a 180-day period. In both reverse exchanges and construction exchanges, the intermediary, using an EAT, takes title to the replacement property and eventually conveys it to the taxpayer (as opposed to a deferred exchange, where the intermediary does not need to take title to either the relinquished or replacement property).
