Parking Arrangement

Parking exists because the deferred exchange rules only work when you sell first.

The 1991 deferred exchange regulations cover a sale followed by a purchase. The IRS explained in section 2.04 of Rev. Proc. 2000-37 that the preamble to those regulations said they do not apply to reverse exchanges, where the replacement is acquired before the relinquished property is transferred. You cannot simply own both properties and call it an exchange.

Parking solves the ownership problem. Section 2.05 of the revenue procedure describes the two patterns: an accommodation party holds the desired replacement until your sale is arranged, or it acquires the replacement, swaps it to you at once, and then holds your old property until a buyer closes. In both, the accommodation party is meant to be treated as the owner of the parked property for tax purposes.

The exchange-first versus exchange-last choice is a lending and title question as much as a tax one, because whoever holds the parked property usually needs financing to buy it.

A hypothetical parked purchase runs on two clocks that start on the same day.

Hypothetical: on March 1 an accommodation titleholder takes title to a $2,000,000 warehouse you want, using a single-member LLC and a loan you advance to it, which section 4.03 of Rev. Proc. 2000-37 permits. You sign the written accommodation agreement within five business days.

You then have 45 days, to April 15, to identify the rental you will sell, and 180 days, to August 28, for the titleholder to transfer the warehouse to you as replacement property. If your rental sells in June, the exchange closes well inside the window. If it has not sold by late August, the safe harbor is lost for that property. Run your own dates with your CPA and intermediary.

One limit catches owners who already hold the target property. Rev. Proc. 2004-51 says the safe harbor does not apply to replacement property you owned within the 180 days before the titleholder took title, so you cannot park your own building and swap it back to yourself.

Parking bites when the timeline slips or the structure falls outside the safe harbor.

Section 3.04 of the revenue procedure says that if its requirements are not met, for example the parked property is not transferred within the time allowed, ownership is decided without regard to the safe harbor. Section 3.02 adds that parking can be accomplished outside the safe harbor, but with no inference either way, which leaves you arguing that the accommodation party bore the benefits and burdens of ownership.

The same parking structure is used for building improvements before taking title, and for owners asking whether they can buy a DST interest before their property sells. The written terms of the arrangement are covered under qualified exchange accommodation arrangement, and the document itself under Rev. Proc. 2000-37.