There are four types of 1031 exchanges.  They are:

1.         Delayed 1031 Exchange

In a delayed 1031 exchange, the 1031 replacement property is closed on a later than the exchanged property.  This is called a “Starker exchange” after the most common court case explaining this.  It is the most common type of 1031 exchange program.  There is a strict time limit for delayed exchanges.  Specifically, a 45-day identification period and 180-day exchange period.

2.         Improvement

In an improvement exchange, the tax payer acquires a property and arranges for new construction or improvements before it is received as replacement property.  It is necessary for the intermediary to close on and hold title to the property until the improvements are made.  The intermediary makes payments to contractors and other suppliers out of the exchange funds.  Title is then transferred to the exchanger at the higher value upon completion of improvements or the 180th day, whichever occurs first.  This can be useful if replacement property is of lesser value than the relinquished property.  Improvement or construction can increase the value of the replacement property to reduce or eliminate a taxable event.

3.         Reverse

A reverse exchange is where a replacement property is purchased and closed before the relinquished property sells.  The intermediary, acting as accommodating title holder (AT) acquires the replacement property.  It holds title until the relinquished property sells at which time a simultaneous or delayed exchange is structured.  It is important for the investor to be aware that reverse exchanges are technically more complicated.

4.         Simultaneous

A simultaneous exchange occurs when the closing of the exchanged property and the replacement property occur concurrently.  A simultaneous exchange is rare since it is difficult to coordinate simultaneous deed transfers on multiple properties.