Alabama 1031 QEAT Services, LLC
Alabama 1031 QEAT Services, LLC (a subsidiary of Alabama 1031 Property Exchange, Inc.) was formed to serve as a Qualified Exchange Accommodation Titleholder, allowing our clients to handle reverse and improvement exchanges all in one place — with the same trusted team managing both the titleholder and intermediary roles from start to finish.
What is a QEAT and why do you need one?
In September of 2000 the IRS issued Revenue Procedure 2000-37 which laid out a framework for structuring "reverse exchanges" and "improvement exchanges." Step one with both is to execute a "Qualified Exchange Accommodation Agreement" with a Qualified Exchange Accommodation Titleholder.
A Qualified Exchange Accommodation Titleholder ("QEAT") is an independent entity that holds title to either the replacement or relinquished property while a reverse or improvement exchange is completed.
Alabama 1031 QEAT Services, LLC fills this role and often serves as the titleholder for taxpayers who desire to either conduct improvement or reverse exchanges.
Reverse Exchanges
Sometimes taxpayers desire to acquire replacement property prior to having conveyed relinquished property. The problem is that as a general rule under section 1031, a taxpayer may not acquire replacement property prior to having conveyed the relinquished property. Thus, the goal of a reverse exchange is to structure the transaction such that the taxpayer is deemed to have conveyed the relinquished property prior to having acquired the replacement property.
Alabama 1031 QEAT Services, LLC (a subsidiary of Alabama 1031 Property Exchange, Inc.) serves as the Qualified Exchange Accommodation Titleholder, acquiring the replacement property through a newly formed LLC of which it is the sole member.
That acquisition starts a 180-day window during which the taxpayer must convey the relinquished property. The taxpayer's net sale proceeds are delivered to Alabama 1031 Property Exchange in its capacity as qualified intermediary, and upon completion of the sale the taxpayer acquires the replacement property from Alabama 1031 QEAT Services, with proceeds applied toward any financing used in the initial acquisition and any balance returned to the taxpayer.
On the taxpayer's income tax return, the transaction is reflected as a customary exchange in that the taxpayer conveyed relinquished property prior to having acquired the replacement property from Alabama 1031 QEAT Services.
Sometimes taxpayers desire to acquire and make improvements to replacement property all within their 180-day exchange period. The problem is that under section 1031, a taxpayer may not use exchange proceeds to make improvements to property already acquired. Thus, the goal of an improvement exchange is to structure the transaction such that improvements are made to the replacement property prior to the date on which the taxpayer takes title.
Alabama 1031 QEAT Services, LLC (a subsidiary of Alabama 1031 Property Exchange, Inc.) serves as the Qualified Exchange Accommodation Titleholder, acquiring the replacement property through a newly formed LLC while the taxpayer's net proceeds are escrowed with Alabama 1031 Property Exchange.
While the property is parked with Alabama 1031 QEAT Services, exchange proceeds are used to fund improvements. Prior to the end of the 180-day exchange period, Alabama 1031 QEAT Services conveys the improved replacement property to the taxpayer in completion of the exchange.
Improvement Exchanges
Have questions?
Get in touch with one of our team members with the information provided in the "Contact" section.