Can Qualified Intermediaries Provide Interest on Exchange Funds?
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.
Can Qualified Intermediaries Be Replaced During an Exchange?
A 1031 exchange is a detailed real estate transaction that, when executed properly, may allow for the deferral of capital gains taxes. The complexity of the process stems from the many rules the IRS has implemented to prevent abuse. One of these requirements is working with a qualified intermediary sometimes referred to as an accommodator.
Do Qualified Intermediaries Provide Audited Financial Statements?
1031 exchanges provide tax-deferral benefits that can support long-term portfolio growth and estate planning goals. However, in order to complete the like-kind swap, you’ll need to work with entities like a qualified intermediary or an accommodator. These are the third-party entities that hold your funds between the sale of your relinquished property and the purchase of your replacement property until a replacement property is acquired.
Qualified Intermediary: Role of 1031 Accommodator in Like-Kind Exchange
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A 1031 exchange serves as a great strategy to defer taxes for investors considering a real estate sale. The “like-kind” swap is not a taxable event, so there’s no liability for any capital gains you make after the transaction. However, the IRS has set strict rules to ensure that such exchanges aren’t abused and are conducted according to existing guidelines.
How to Identify a Property with Your Qualified Intermediary
A qualified intermediary (QI) is one of the most important people you’ll interact with during a 1031 exchange. For that reason, you’ll want to find a reputable QI to work with you through the exchange process.
