An Exchange Accommodation Titleholder (EAT) is an entity used in a specific type of 1031 exchange known as a reverse exchange. Under Section 1031 of the Internal Revenue Code, a taxpayer may defer capital gains taxes on the exchange of certain types of property, typically real estate, as long as the property is used for business or investment purposes and the exchange is like-kind.
In a standard 1031 exchange, the taxpayer sells the relinquished property before acquiring the replacement property. However, in a reverse exchange, the taxpayer needs to acquire the replacement property before the relinquished property can be sold.
Because the Internal Revenue Service (IRS) regulations do not allow the taxpayer to hold the title to both the relinquished and replacement properties at the same time, the EAT is used to hold the title to one of the properties temporarily. The EAT is typically an LLC or other entity that is considered a “parking” arrangement under the IRS Revenue Procedure 2000-37.
The EAT holds the title to the parked property and facilitates the exchange by entering into a Qualified Exchange Accommodation Agreement (QEAA) with the taxpayer. This arrangement allows the taxpayer to meet the requirements of the 1031 exchange while effectively managing the timing issues associated with the sale and purchase of the properties.