A 1031 exchange allows an investor to dispose of an existing property for another “like-kind” investment, by deferring income on the transaction. Comerica will work with you to provide a structure to achieve a qualified deferral, strategic reinvestment into the replacement property, and a competitive return on the tax deferred proceeds.

As your Qualified Intermediary, we’ll facilitate the exchange of properties, hold the proceeds from the closing of the Relinquished Property in a segregated, FDIC insured depository account, and provide all necessary documents. Plus, Comerica’s Qualified Intermediary services comply with all requirements of the Treasury Department, giving you confidence in the transaction.

Asset types

Real estate property that is eligible through our 1031 exchange services include:

  • Commercial
  • Mines/quarries/oil and gas
  • Multiple family dwelling
  • Residential rental
  • Restaurants
  • Retail
  • Timber and timberland
  • Vacant land
  • Leasehold interests
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Through the 1031 exchange, the investor (Exchanger) disposes of an investment in existing property (Relinquished Property), uses the equity from the Relinquished Property to acquire a “like-kind” investment (Replacement Property), and defers the capital gains tax. The properties must be “like-kind” and held for productive use in a trade or business, or held for investment.

Reverse Exchange Services

A reverse exchange allows an investor to acquire “like-kind” Replacement Property prior to disposing of an existing property, and deferring income on the transaction. SCFS Reverse Exchange, LLC, a subsidiary of Comerica Bank, will work with you and your advisor to provide a structure to achieve a qualified deferral.

Comerica Bank will also act as your Qualified Intermediary to facilitate the exchange of properties, hold any remaining proceeds from the closing of the Relinquished Property, and supply all necessary documents. Comerica’s exchange services comply with all requirements of the Treasury Department, giving you confidence in the transaction.

How it works

In a 1031 Forward Exchange, the Exchanger must dispose of a like-kind property before acquiring a Replacement Property. Conversely, acquiring a like-kind property before relinquishing another property is called a Reverse Exchange. This is another viable method to defer the tax on capital gains or ordinary recapture from the sale of real property when replaced with like-kind assets.

Safe Harbor

The Internal Revenue Service’s Revenue Procedure 2000-37 (Rev. Proc. 2000-37) provides that tax deferral on Reverse Exchanges will be recognized if the transaction qualifies as a 1031 “safe harbor.” Under the safe harbor guidelines:

  • The entity used to facilitate a Reverse Exchange is called the Exchange Accommodation Titleholder (EAT).
  • The property held by the EAT is called the “parked property.”
  • The entity formed by the EAT to hold and take title to the parked property is a “Holding Entity.”

The Holding Entity facilitates the Reverse Exchange by taking title to the Replacement Property under a “Qualified Exchange Accommodation Agreement” (QEAA).

Other considerations

  • The Exchanger must identify the property to be relinquished within 45 days after the Holding Entity acquires the Replacement Property.
  • The Reverse Exchange must be completed within 180 days after the Holding Entity acquires the parked property.
  • The Holding Entity is required to have hazard and commercial general liability insurance while holding title to the property. The Exchanger is responsible for obtaining and paying for these policies. Other insurances may also be required.
  • The property must meet Comerica’s environmental guidelines and policies, with the Exchanger indemnifying the Holding Entity from liability on the parked property.
  • The safe harbor qualification does not apply to Replacement Property held in a QEAA if the property was owned by the taxpayer within the 180-day period ending on the date of transfer of qualified indicia of ownership of the property to an EAT (Rev. Proc. 2004-51).
  • Consult your tax advisor to determine if your property qualifies under the provisions of §1031 and Rev. Proc. 2000-37.

Asset types

Any asset that qualifies for tax deferral under the forward exchange regulations can also qualify under the Reverse Exchange guidelines.