Why parking arrangements exist
In a standard 1031 exchange, you sell first and buy second within 180 days. A reverse exchange flips the order: you buy the replacement before you have sold the relinquished property. The problem is that for a valid 1031 exchange, you cannot own both properties simultaneously — the IRS will treat it as a purchase with no exchange. The solution is a parking arrangement: an independent third party, the Exchange Accommodation Titleholder (EAT), legally holds title to one of the properties on your behalf while you complete the transaction.
The EAT is typically an LLC that your qualified intermediary (QI) or a related firm creates specifically for the transaction. You enter into a Qualified Exchange Accommodation Agreement (QEAA) with the EAT, which governs the terms of the arrangement.
IRS Revenue Procedure 2000-37 safe harbor
The IRS provided a safe harbor for parking arrangements in Revenue Procedure 2000-37 (updated by Rev. Proc. 2004-51). To qualify: the QEAA must be signed within five business days of the EAT taking title; the EAT must relinquish the property within 180 days; and the taxpayer must identify the relinquished property within 45 days of the EAT acquiring the replacement. The EAT cannot be the taxpayer, a disqualified person, or the QI — it must be a true third party.
Inside the safe harbor, the IRS agrees not to challenge the arrangement as a sham. Outside it — for example, if you need more than 180 days — there is no guarantee, though some practitioners have argued successfully under general exchange principles.
Costs and practical considerations
Parking arrangements add complexity and cost. The EAT charges a fee for holding title, there are additional legal documents (QEAA, operating agreement, deed transfers), and lenders are often unfamiliar with the structure (getting a loan in the EAT's name requires a cooperative lender). Reverse exchanges also require more planning lead time than forward exchanges. Despite the friction, parking arrangements are an important tool when a compelling replacement property appears before you are ready to sell the relinquished one.
Frequently asked questions
What is an Exchange Accommodation Titleholder (EAT)?
An EAT is a neutral third-party entity (usually an LLC) that holds legal title to either the replacement or relinquished property during a reverse 1031 exchange, allowing the investor to avoid owning both properties simultaneously.
How long can the EAT hold the property?
Under the IRS safe harbor (Rev. Proc. 2000-37), the EAT must release the property within 180 days of acquiring it.
Is a parking arrangement the same as a reverse exchange?
Yes — a reverse exchange uses a parking arrangement as its mechanism. The terms are often used interchangeably.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.