What is a common condition for a reverse exchange to qualify for tax deferral?

In a reverse exchange, a common condition for qualifying for tax deferral is that transactions must occur within strict deadlines. This means that the taxpayer must acquire the replacement property before disposing of the relinquished property, and the transaction must adhere to specific timelines set by the IRS. Typically, one of these timelines states that the taxpayer has 180 days from the date of the exchange to complete the acquisition of the relinquished property after the replacement property is obtained.

This strict timeline ensures that the exchange is executed properly and qualifies under the relevant provisions of the Internal Revenue Code, therefore facilitating tax deferral under Section 1031.

Other aspects, such as the location of properties, their use as income-producing assets, or their classification as residential do not dictate the eligibility for tax deferral in a reverse exchange, which is why they do not serve as conditions for meeting IRS requirements.