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What Is A Reverse Starker Exchange?

A Reverse Starker Exchange, also known as a Reverse Improvement Exchange, is a type of tax-deferred exchange under Section 1031 of the Internal Revenue Code. It allows a taxpayer to exchange a property that is already owned for another property of equal or greater value while deferring the payment of capital gains taxes and other taxes that would otherwise be due upon the sale of the property.

In a Reverse Starker Exchange, the taxpayer first identifies the replacement property that they want to acquire and then arranges for the sale of their existing property to an unrelated third party. The proceeds from the sale of the old property are then held in a qualified intermediary account until the purchase of the replacement property is completed.

Unlike a regular Starker Exchange, where the taxpayer sells the old property first and then identifies and acquires the replacement property, a Reverse Starker Exchange involves acquiring the replacement property first and then selling the old property.

The Reverse Starker Exchange is a powerful tool for real estate investors who want to defer their tax liability while taking advantage of opportunities to acquire new properties. It requires careful planning and execution, as well as the assistance of qualified intermediaries and tax professionals to ensure compliance with the IRS regulations governing 1031 exchanges.