Reverse 1031 Exchange
Understanding the Reverse 1031 Exchange — and How It Can Work with a Mortgage
In real estate investing, timing is everything. Sometimes, the perfect replacement property appears before you’ve sold your current one. That’s where a Reverse 1031 Exchange can help.
What Is a Reverse 1031 Exchange?
A Reverse 1031 Exchange allows investors to buy the replacement property first and then sell their relinquished property later—still deferring capital gains taxes under IRS Section 1031. This structure offers flexibility when market opportunities move fast or when you want to secure your next property before listing the current one.
How Mortgages Fit In
Financing a Reverse 1031 can be more complex because you cannot take title to the new property directly before your sale. Instead, a qualified exchange accommodation titleholder (EAT) temporarily holds the new property until your existing property sells.
Traditional mortgages will not allow this, however there still are mortgage options. That means:
The loan may close in the EAT’s name, with you as the guarantor.
Some lenders will require additional documentation or specific title endorsements.
Equity or bridge loans are sometimes used temporarily until the exchange completes.
Key Benefits
Secure your ideal replacement property without waiting for a sale.
Maintain tax deferral benefits through the 1031 rules.
Avoid missing out on opportunities due to timing conflicts.
The Bottom Line
A Reverse 1031 Exchange can be a powerful tool for seasoned investors—especially when combined with smart mortgage planning. Work closely with a qualified intermediary, tax advisor, and experienced lender to structure your financing and timeline correctly. Done right, it can open the door to greater flexibility and continued portfolio growth.
