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What is a Qualified Escrow Account?
A qualified escrow account offers a secure and reliable way to hold and manage funds for a specific purpose while also providing protection for all parties involved. Investors often use this type of escrow account in a 1031 exchange to hold the funds from the proceeds of a sale until the purchase of a replacement property is complete.
Who Holds the Proceeds in a 1031 Exchange?
In a 1031 exchange, the investor typically works with a qualified intermediary (QI), also known as a facilitator, who acts as a neutral third party to facilitate the exchange. The QI plays a crucial role in the exchange process, as they hold the proceeds from the sale of the relinquished property and facilitate the purchase of the replacement property.
How Are Proceeds Held By The Qualified Intermediary?
One main rule involved with the 1031 exchange process is that you, as the exchangor, are not allowed to handle any funds involved with the exchange. That job goes to the Qualified Intermediary (QI). Also known as an accommodator, the QI is an independent entity that is involved with every step of the like-kind exchange process.
Simple Guide to Choosing a 1031 Qualified Intermediary
7 Questions to Ask Before Choosing a 1031 Accommodator... In the chaos of closing on a sale of your property, the last thing most people are thinking about is choosing a qualified intermediary, or “QI” (a.k.a., an exchange “accommodator” or “facilitator”). After all, aren’t they all the same? Aren’t all qualified intermediaries “qualified”? The answer is emphatically, no.
Can a Relative Be a 1031 Qualified Intermediary?
The successful execution of a 1031 exchange can allow an investor to defer payment of capital gains taxes. This tactic can help you leverage your investment capital, but to obtain approval from the IRS, you must carefully follow the rules governing the 1031 exchange transaction. If you make a mistake, the IRS may disqualify the exchange, resulting in you having to pay the capital gains taxes immediately.
Can an LLC Member Serve as a Qualified Intermediary?
Real estate investors who complete like-kind exchanges to defer capital gains taxes on the sale of highly appreciated assets have to follow a stringent set of rules set forth by the Internal Revenue Service. Foremost among those regulations is the use of a Qualified Intermediary (QI) to facilitate all aspects of the 1031 exchange.
