The short answer
You do, one way or another. The exchange accommodation titleholder (EAT) that takes title has no money of its own in the deal, and Rev. Proc. 2000-37 expressly lets you lend or advance it funds, guarantee its acquisition loan and indemnify it. In practice the price is covered by your own cash or credit line, a third-party loan made to the titleholder with your guarantee, or a mix of both. When your relinquished property finally sells, the proceeds flow through the qualified intermediary and stand in for that bridge money.
At a glance
| Who pays at closing | You, through advances, loans or guarantees to the titleholder |
|---|---|
| Permitted by | Rev. Proc. 2000-37, section 4.03, items 2 and 3 |
| Titleholder's role | Holds title and is treated as owner for federal tax purposes |
| Written agreement | Signed within 5 business days of the titleholder taking title |
| Parking limit | 180 days, combined for every property held in the arrangement |
| Sale proceeds | Routed through a qualified intermediary, never paid to you |
| Alternative structure | Park the property you are selling and borrow against it instead |
The safe harbor assumes the money comes from you, and says so
A reverse exchange exists because your sale money is not available yet. Section 4.02 of Rev. Proc. 2000-37 lets an accommodation party hold 'qualified indicia of ownership' of the replacement while you arrange the sale, and section 4.03 lists the arrangements that do not break the safe harbor even when they are not arm's length.
Two of those items are the funding rules. Item 2 allows you or a disqualified person to guarantee 'some or all of the obligations of the exchange accommodation titleholder, including secured or unsecured debt incurred to acquire the property'. Item 3 allows you to loan or advance funds to the titleholder or guarantee a loan to it.
So the IRS is not expecting the titleholder to bring capital. It treats the titleholder as the beneficial owner for federal tax purposes while you supply the economics, which is exactly what makes the structure work for a buyer who has not sold yet.
Three funding sources cover almost every parked purchase
Your own money is the simplest. Cash, a securities-based line or a credit line on another property is advanced to the titleholder under a loan agreement, and the titleholder closes the purchase in its own name. Check that the borrowing is outside the exchange account; money already sitting with your intermediary from an earlier sale cannot be pulled out for this (touching or borrowing exchange funds).
A third-party mortgage is the second route. The lender makes the loan to the titleholder entity, usually a single-member LLC, and you sign the guarantee that item 2 permits. Some lenders will not underwrite a loan to an entity they do not know, which is why the lender conversation has to start before you sign the purchase contract; the planned page on lenders that refuse EAT title covers the workarounds.
Most deals blend the two: a loan for most of the price and your advance for the rest, in the same proportions a normal purchase would use.
Parking the property you are selling changes who needs the loan
Section 2.05 of the revenue procedure describes a second pattern. Instead of parking the new property, the accommodation party 'may acquire the desired replacement property on behalf of the taxpayer and immediately exchange such property with the taxpayer for the relinquished property', then holds your old property until a buyer closes.
Here you take title to the replacement on day one, so the replacement lender lends to you in the ordinary way. The titleholder still needs money to pay for the replacement it hands you, and that is typically supplied by your advance or by a loan secured against the property it now holds.
The exchange-first form keeps your replacement lender in familiar territory, but it only works if the property you are selling can carry the titleholder's financing. The reverse exchange guide compares the two structures side by side.
Worked example: a $1,000,000 purchase before an $800,000 sale
Hypothetical and round numbers; run your own numbers with your CPA. You find a $1,000,000 replacement and expect to sell a debt-free rental for $800,000 net within four months. The titleholder buys with an $800,000 bank loan you guarantee and a $200,000 advance from your credit line.
On day 110 your rental sells. The $800,000 goes to the qualified intermediary, which uses it to acquire the replacement from the titleholder, and the titleholder retires the bank loan. Your $200,000 advance is credited as added cash toward the price, so you end up with a $1,000,000 property, no new debt and the full $800,000 reinvested.
How each advance is repaid or credited is set by the documents, and the revenue procedure itself flags that the IRS may recast payments under these arrangements as fees 'to the extent necessary to reflect the true economic substance'. Have your CPA review the funding mechanics before closing.
When a trust interest makes the bridge unnecessary
Bridge financing exists to hold a specific building you are afraid to lose. If what you want is passive income rather than a particular property, a Delaware Statutory Trust interest named on a normal 45-day list removes the need to buy first, because beneficial interests can usually be bought after the sale closes (why a reverse exchange into a DST rarely makes sense).
Price the bridge honestly against that path. A reverse exchange stacks titleholder fees, loan costs and possibly an extra transfer on top of a normal exchange; the planned page on reverse exchange costs itemizes them.
Related questions
Can the titleholder use its own money?
It can, but nothing in the safe harbor requires it to. Section 4.03 lets you fund it by loan, advance or guarantee without losing the safe harbor.
Can I use proceeds from a different exchange to fund the parked purchase?
Only if that money belongs to the same exchange and moves through the intermediary under the exchange agreement. Pulling cash out of an open exchange account to lend to a titleholder risks constructive receipt.
Does my guarantee make me the owner for tax purposes?
Not inside the safe harbor. Rev. Proc. 2000-37 treats the titleholder as the beneficial owner even though you guarantee its debt, as long as every requirement in section 4.02 is met.
What if I cannot get a lender to lend to the titleholder?
Consider the exchange-first structure, where you take title to the replacement and the titleholder holds your old property, or fund more of the price yourself.
Does the 180-day limit change how I should borrow?
Yes. Bridge money must be in place for at most 180 days in the arrangement, so match any loan term or maturity to the date the titleholder must transfer the property.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.