--- title: Can Qualified Intermediaries Provide Interest on Exchange Funds? description: Learn more about whether qualified intermediaries can provide interest on exchange funds. image: https://www.realized1031.com/hubfs/iStock-1191384653-modified-21fb0c80-c87d-4030-ad23-88616e488813.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Can Qualified Intermediaries Provide Interest on Exchange Funds? Posted Aug 13, 2025 ![iS-1191384653](https://www.realized1031.com/hs-fs/hubfs/iStock-1191384653-modified-21fb0c80-c87d-4030-ad23-88616e488813.jpg?width=2121&height=1193&name=iStock-1191384653-modified-21fb0c80-c87d-4030-ad23-88616e488813.jpg) Most investors who are conducting a 1031 exchange focus on following IRS rules to ensure eligibility for tax deferral. Compliance with these rules is essential for deferring capital gains taxes and managing the timing of tax obligations. However, one often-overlooked detail is the treatment of interest earned on escrowed proceeds. Can your capital actually generate interest while in escrow? Can qualified intermediaries provide interest on exchange funds? The answer is a qualified yes. Below, Realized 1031 has shared an insightful article that dissects the intricacies. ### Recap of the Role of a Qualified Intermediary The reason why qualified intermediaries are necessary in 1031 exchanges is because of the rule that investors [cannot gain direct control of the proceeds](https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx) from the property sale. Otherwise, this may trigger a taxable event. The accommodator or intermediary will be the one to receive the funds, hold them in escrow, and transfer them to the seller of the replacement property. Aside from [holding the funds](https://www.realized1031.com/blog/how-are-proceeds-held-by-the-qualified-intermediary), the qualified intermediary [oversees the exchange](https://www.irs.gov/businesses/international-businesses/miscellaneous-qualified-intermediary-information) and helps ensure that the transaction adheres to applicable rules and deadlines. Since the accommodator holds your funds for up to six months or 180 days, this begs the question: What happens to the interest generated by those funds? This is a reasonable concern since some intermediaries may retain interest earned or apply it toward operational costs. Whether any portion of interest is passed through to the investor depends on the terms of the exchange agreement. ### Interest Can Be Earned, But With Some Caveats In many cases, qualified intermediaries will put your funds into interest-generating accounts. However, the availability and distribution of the generated interest can vary based on several factors. - **Type of Exchange Agreement: **Most exchange agreements between the exchanger and the accommodator will outline whether the funds will be placed in an interest-bearing account or not. The agreement will also include how the interest will be distributed. - **Amount of Funds: **For larger exchanges (say, over $500,000), it may be more common to negotiate terms that allocate a portion or all of the accrued interest to the exchanger. Smaller exchanges may have flat-rate or minimal-interest structures due to lower yields. - **Banking Arrangements: **Some intermediaries pool funds in commingled accounts, while others use segregated accounts. The latter is more likely to offer individual interest allocations. ### How Is Qualified Intermediary Interest Distributed? Let’s say that your exchange agreement has a provision for interest. How will the funds be distributed? In most cases, the interest will be paid out by the end of the exchange period. Your intermediary may provide a final financial statement showing the gross interest earned, fees deducted, and the net interest returned to you. We are talking net interest because some agreements will have provisions stating that the qualified intermediary will use part of the interest for management fees and other costs. Given the limited holding period, the total interest generated is often modest. However, it may help offset a portion of the overall cost of the exchange process fees you’ll need to pay to your [accommodator](https://www.realized1031.com/blog/simple-guide-to-choosing-a-1031-qualified-intermediary). What about taxes? Interest is not a capital gain. As such, it’s not qualified for tax-deferral benefits. Any interest received is generally taxed as ordinary income and is subject to the applicable federal and state income tax rates. ### Wrapping Up: 1031 Exchange Accommodator Interest Your 1031 exchange funds in escrow may earn interest, but you may not always get the amount, if at all. In many cases, interest may be retained by the intermediary to cover fees or operational expenses. While typically a small amount, any interest passed through to the investor may help offset exchange-related costs. *The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.* *Article written by: Story Amplify. Story Amplify is a marketing agency that offers services such as copywriting across industries, including financial services, real estate investment services, and miscellaneous small businesses.* **Sources:** [https://www.irs.gov/filing/federal-income-tax-rates-and-brackets](https://www.irs.gov/filing/federal-income-tax-rates-and-brackets) [https://www.irs.gov/businesses/international-businesses/miscellaneous-qualified-intermediary-information](https://www.irs.gov/businesses/international-businesses/miscellaneous-qualified-intermediary-information) [https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx](https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx) Learn How To Find A Qualifed Intermediary [![Download The Guidebook To QI's](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/QI-eBook-250.png?width=250&height=250&name=QI-eBook-250.png "Learn How To Choose The Right ...") ](https://www.realized1031.com/blog/can-qualified-intermediaries-provide-interest-on-exchange-funds#blogform) Download eBook ---   --- ### Download The Guidebook To QI's ![Learn How To Find A Qualifed Intermediary](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/QI-eBook-550.jpg?width=550&height=650&name=QI-eBook-550.jpg) Learn How To Choose The Right Qualified Intermediary. 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Can your capital actually generate interest while in escrow? Can qualified intermediaries provide interest on exchange funds? The answer is a qualified yes. Below, Realized 1031 has shared an insightful article that dissects the intricacies. Recap of the Role of a Qualified Intermediary The reason why qualified intermediaries are necessary in 1031 exchanges is because of the rule that investors cannot gain direct control of the proceeds from the property sale. Otherwise, this may trigger a taxable event. The accommodator or intermediary will be the one to receive the funds, hold them in escrow, and transfer them to the seller of the replacement property. Aside from holding the funds, the qualified intermediary oversees the exchange and helps ensure that the transaction adheres to applicable rules and deadlines. Since the accommodator holds your funds for up to six months or 180 days, this begs the question: What happens to the interest generated by those funds? This is a reasonable concern since some intermediaries may retain interest earned or apply it toward operational costs. Whether any portion of interest is passed through to the investor depends on the terms of the exchange agreement. Interest Can Be Earned, But With Some Caveats In many cases, qualified intermediaries will put your funds into interest-generating accounts. However, the availability and distribution of the generated interest can vary based on several factors. Type of Exchange Agreement: Most exchange agreements between the exchanger and the accommodator will outline whether the funds will be placed in an interest-bearing account or not. The agreement will also include how the interest will be distributed. Amount of Funds: For larger exchanges (say, over $500,000), it may be more common to negotiate terms that allocate a portion or all of the accrued interest to the exchanger. Smaller exchanges may have flat-rate or minimal-interest structures due to lower yields. Banking Arrangements: Some intermediaries pool funds in commingled accounts, while others use segregated accounts. The latter is more likely to offer individual interest allocations. How Is Qualified Intermediary Interest Distributed? Let’s say that your exchange agreement has a provision for interest. How will the funds be distributed? In most cases, the interest will be paid out by the end of the exchange period. Your intermediary may provide a final financial statement showing the gross interest earned, fees deducted, and the net interest returned to you. We are talking net interest because some agreements will have provisions stating that the qualified intermediary will use part of the interest for management fees and other costs. Given the limited holding period, the total interest generated is often modest. However, it may help offset a portion of the overall cost of the exchange process fees you’ll need to pay to your accommodator. What about taxes? Interest is not a capital gain. As such, it’s not qualified for tax-deferral benefits. Any interest received is generally taxed as ordinary income and is subject to the applicable federal and state income tax rates. Wrapping Up: 1031 Exchange Accommodator Interest Your 1031 exchange funds in escrow may earn interest, but you may not always get the amount, if at all. In many cases, interest may be retained by the intermediary to cover fees or operational expenses. While typically a small amount, any interest passed through to the investor may help offset exchange-related costs. The tax and estate planning information offered by the advisor is general in nature. It is provided for informational purposes only and should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. Article written by: Story Amplify. Story Amplify is a marketing agency that offers services such as copywriting across industries, including financial services, real estate investment services, and miscellaneous small businesses. Sources: https://www.irs.gov/filing/federal-income-tax-rates-and-brackets https://www.irs.gov/businesses/international-businesses/miscellaneous-qualified-intermediary-information https://www.investopedia.com/financial-edge/0110/10-things-to-know-about-1031-exchanges.aspx", "articleSection" : [ "Qualified Intermediaries" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2025-08-13T14:00:03+0000", "datePublished" : "2025-08-13T14:00:03+0000", "description" : "Learn more about whether qualified intermediaries can provide interest on exchange funds.", "headline" : "Can Qualified Intermediaries Provide Interest on Exchange Funds?", "image" : { "@type" : "ImageObject", "height" : 1193, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/iStock-1191384653-modified-21fb0c80-c87d-4030-ad23-88616e488813.jpg", "width" : 2121 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/can-qualified-intermediaries-provide-interest-on-exchange-funds", "name" : "Can Qualified Intermediaries Provide Interest on Exchange Funds?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/iStock-1191384653-modified-21fb0c80-c87d-4030-ad23-88616e488813.jpg" } ```