1031 Exchange in Denver: When You Need to Buy Before You Sell

In a normal exchange you sell first. If the right Denver property is available before yours has sold, the exchange has to be turned around: a separate accommodation titleholder takes title to one of the properties for up to 180 days. That only works if it is arranged before you buy, the financing allows it, and your current property can realistically sell inside the window.

Start here: where are you?

• Not yet under contract to buy. This is when a reverse exchange can still be structured. Read the conditions below before you sign.
• Under contract to buy, closing soon, current property not sold. Talk to your intermediary and lender now. The titleholder has to take title at the purchase closing, and the written parking agreement has to be signed within five business days after that.
• Already bought the new property in your own name. The IRS safe harbor does not cover replacement property you owned in the 180 days before it was transferred to the titleholder (Rev. Proc. 2004-51). Selling the old property later is ordinarily a separate taxable sale; a CPA can advise.
• Selling first after all. Then it is a standard deferred exchange: set it up before the sale closes, identify within 45 days, and finish by the earlier of day 180 or your tax-return due date, including extensions (26 U.S.C. §1031(a)(3)). See the 1031 exchange timeline.

Why "buy first, then sell" isn't an exchange on its own

The deferred-exchange regulations cover a sale followed by a purchase. Buying the replacement first falls outside them, which is why the IRS published a separate safe harbor for these transactions (Rev. Proc. 2000-37). Under it, an exchange accommodation titleholder (a person who is not you and not a disqualified person) holds title to one property in a qualified exchange accommodation arrangement while you complete the other side.

The safe-harbor conditions

From Rev. Proc. 2000-37, as modified by Rev. Proc. 2004-51:

1. The titleholder, not you, holds the qualified indicia of ownership of the parked property.
2. When title is transferred to the titleholder, you intend the property to be the replacement (or the relinquished) property in a §1031 exchange.
3. Within five business days after the titleholder takes title, you and the titleholder sign a written qualified exchange accommodation agreement.
4. Within 45 days after the titleholder takes title to the replacement property, you identify the property you will give up, in writing, following the ordinary identification rules.
5. Within 180 days after the titleholder takes title, the parked property is transferred to you as replacement property, or to a buyer as relinquished property.
6. The combined time any property is parked does not exceed 180 days.

Two limits people miss. The safe harbor does not apply to replacement property you owned in the 180 days before the transfer to the titleholder. And building improvements on land you already own is not an exchange (Rev. Proc. 2004-51). Parking outside the safe harbor is not automatically invalid, but the IRS gives no assurance for it (Rev. Proc. 2000-37).

In a reverse exchange the clocks start when the titleholder takes title, not when you sell. IRS disaster relief under Rev. Proc. 2018-58 can postpone these periods; nothing else routinely does.

What decides whether a reverse exchange is feasible

• Financing. Ask your lender early whether it will lend where an accommodation titleholder holds title.
• The sale side. Can your current Denver property realistically sell within the window, including your buyer's inspection and financing contingencies?
• Which property to park. The revenue procedure allows either property to be parked; which is practical usually depends on your lender and title company.
• Paperwork. A reverse exchange needs a titleholder entity and more documents than a standard exchange, so it takes more lead time before the purchase closing.

Colorado rules that still apply

• Nonresident withholding. If you sell Colorado property and your address is outside Colorado, the closing agent withholds the lesser of 2% of the sales price or the net proceeds due to you, unless the price is $100,000 or less or you sign an affirmation, for example that you reasonably expect to owe no Colorado tax on the gain (C.R.S. 39-22-604.5; Form DR 1083). Neither source names like-kind exchanges as an exception. Ask your CPA and closing agent how it applies to an exchange.
• Documentary fee. Colorado charges a documentary fee of one cent per $100 of consideration when the deed is recorded (C.R.S. 39-13-102). An exchange does not change it.
• Exchange facilitators. Colorado law (C.R.S. 6-1-721) requires facilitators handling Colorado property to carry a $1,000,000 fidelity bond and $250,000 errors-and-omissions coverage, or use a permitted alternative such as a qualified escrow or trust that needs both signatures, and to tell you in writing how funds are held. Ask any intermediary for that evidence before you sign.

Before you sign the purchase contract

Count your dates in the deadline calculator, starting from the titleholder's acquisition date for a reverse exchange.

Watch

General rule explainer — not recorded for Denver, and not about reverse exchanges

If the Funds Hit Your Account, It's Over · 20 seconds

This short clip covers a standard sale-first exchange: the proceeds must not reach you. It says nothing about titleholders or buying first.

A hypothetical sequence

Hypothetical — not a client and not a result. A Denver investor owns a rental house and finds a small apartment building whose seller wants to close in 30 days. The house isn't listed yet. Before signing, the investor confirms the lender will lend to an accommodation titleholder, engages the titleholder, and makes the contract assignable. At closing the titleholder takes title, and the parking agreement is signed within five business days. Within 45 days the investor identifies the house in writing as the property to be given up, lists it, and must close its sale within 180 days of the titleholder's purchase. If the sale doesn't close by then, the safe harbor no longer applies, so the listing price and the buyer's contingencies matter as much as the tax rules.

Frequently asked questions

Can I just buy the new property now and sell mine within 180 days?

Not as an exchange under the safe harbor. The replacement must be acquired through an exchange accommodation titleholder under a written agreement, and property you owned in the 180 days before the titleholder takes title is excluded (Rev. Proc. 2000-37; Rev. Proc. 2004-51).

When do the 45 and 180 days start in a reverse exchange?

When the titleholder receives title to the parked property: 45 days to identify the property you will give up, and 180 days for the parked property to be transferred, with total parking time not exceeding 180 days (Rev. Proc. 2000-37).

Is a reverse exchange the same as an improvement exchange?

Related but different. Improvements can be built while the titleholder holds the replacement, but only what is in place when you take title counts, and improving land you already own isn't an exchange (Rev. Proc. 2000-37; Rev. Proc. 2004-51). See construction and improvement exchanges.

Does Colorado withhold tax when I sell?

Only if your address is outside Colorado and the price is above $100,000: the lesser of 2% of the price or the net proceeds due to you, unless an affirmation applies (C.R.S. 39-22-604.5; DR 1083). Ask your CPA and closing agent how it applies to an exchange.

Who you'll work with

Leah Badach is a Certified Exchange Specialist with 11+ years of 1031 exchange experience. Reverse, improvement and standard exchanges are all available. Before you sign, Leah confirms in writing which qualified intermediary and accommodation titleholder will be involved, and gives you their account, bond and insurance documents. You can verify the credential in the FEA CES directory.

Related: Colorado 1031 exchanges · Reverse 1031 exchange · Construction and improvement exchanges · 1031 exchange timeline · Deadline calculator · Questions to ask any qualified intermediary

Sources

• Rev. Proc. 2000-37: the reverse-exchange safe harbor, its conditions and its 45- and 180-day limits.
• Rev. Proc. 2004-51: the 180-day prior-ownership exclusion and improvements on land you already own.
• Rev. Proc. 2018-58, Section 17: disaster-relief postponement of exchange deadlines.
• 26 U.S.C. §1031: the 45-day identification and exchange-period rules for standard exchanges.
• C.R.S. Title 39 (2024): §39-22-604.5 nonresident withholding and §39-13-102 documentary fee.
• Colorado Form DR 1083: withholding certificate and affirmations.
• C.R.S. Title 6 (2024): §6-1-721, like-kind exchanges by exchange facilitators.

Educational information, not tax or legal advice.