1031 exchange loan
A 1031 exchange loan is a short-term financing tool used in U.S. real estate to help an investor successfully complete a 1031 like-kind exchange when timing or cash flow is tight.
A 1031 exchange loan is a temporary financing solution that helps real estate investors buy the next property on time so they can defer taxes legally under a 1031 exchange.
A 1031 exchange loan is temporary financing used to:
Buy the replacement property before the old one sells
Cover a cash shortfall so the exchange remains tax-deferred
Help meet strict IRS timelines
It is not a special IRS loan, but rather a bridge or short-term loan structured to comply with 1031 rules.
Common Types of 1031 Exchange Loans
a. Bridge Loans
Short-term (6–24 months)
Used to “bridge” timing gaps
Repaid after the old property sells
b. Reverse Exchange Loans
Used when you buy first, sell later
Often involves an Exchange Accommodation Titleholder (EAT)
c. Improvement (Construction) Exchange Loans
Used to renovate or improve the replacement property
Must be completed within 180 days
Reverse 1031 Exchange Loans— explained simply (with example)
A Reverse Exchange is a type of 1031 exchange where you buy the new (replacement) property first and sell the old (relinquished) property later.
This is the opposite of a normal 1031 exchange.
When a 1031 Exchange Loan Is Needed
You may need one if:
You find a great replacement property before selling your current one
Sale proceeds are not enough to buy the replacement property
Funds are tied up with the Qualified Intermediary
You want to avoid missing the 45- or 180-day deadline
Common Types of 1031 Exchange Loans
a. Bridge Loans
Short-term (6–24 months)
Used to “bridge” timing gaps
Repaid after the old property sells
b. Reverse Exchange Loans
Used when you buy first, sell later
Often involves an Exchange Accommodation Titleholder (EAT)
c. Improvement (Construction) Exchange Loans
Used to renovate or improve the replacement property
Must be completed within 180 days
Who Typically Uses 1031 Exchange Loans?
Commercial real estate investors
High-net-worth individuals
Property developers
Portfolio landlords
1031 Exchange Loan vs Normal Bridge Loan
| Feature | 1031 Exchange Loan | Normal Bridge Loan |
|---|---|---|
| Primary Purpose | To complete a 1031 tax-deferred exchange | To cover short-term financing gaps |
| Tax Consideration | Structured to comply with IRS 1031 rules | No tax-deferment consideration |
| Use Case | Buying replacement property within 1031 deadlines | Any short-term real estate need |
| Timing Sensitivity | Extremely strict (45 & 180-day rules) | Flexible |
| Qualified Intermediary (QI) | Required | Not Required |
| Reverse Exchange Support | Yes | Rare |
| Improvement Exchange Support | Yes | Usually no |
| IRS Risk | High if structured incorrectly | None |
| Interest Rate | High (short-term risk premium) | High, but usually lower |
| Loan Term | 6–24 months | 6–36 months |
| Exit Strategy | Sale of relinquished property | Sale, refinance, or cash inflow |
| Complexity | Very high | Medium |
| Legal Structuring | Requires tax attorney & QI | Basic loan docs |
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