Who Holds the Proceeds in a 1031 Exchange?

In a 1031 exchange, the proceeds from the sale of the relinquished property cannot be held by the taxpayer (investor) or anyone closely related to them. If the taxpayer in O Fallon, IL receives or controls the funds, even temporarily, the exchange will be disqualified, and capital gains taxes will be owed.

What Is a Qualified Intermediary (QI) in a 1031 Exchange?

A Qualified Intermediary (QI)—also called an Accommodator or Exchange Facilitator—is a neutral third party who holds the proceeds from the sale in O Fallon, IL to ensure the transaction complies with IRS Section 1031 rules.

Who Holds the Proceeds in a 1031 Exchange in O Fallon, IL?

What Does a Qualified Intermediary Do?

A QI plays a critical role in completing a valid 1031 exchange by:

  • Holding the Proceeds Securely – The QI keeps the funds in a separate escrow account until they are used to purchase the replacement property.
  • Facilitating the Exchange Process – The QI ensures compliance with IRS deadlines, including the 45-day identification period and 180-day purchase period.
  • Preventing Disqualification – By handling the funds, the QI ensures the investor does not have constructive receipt of the money, which would invalidate the exchange.
1031 exchange compliance rules in O Fallon, IL

Who Can Be a Qualified Intermediary?

To qualify as a QI in O Fallon, IL, the individual or company must be an independent third party. The following people cannot act as a Qualified Intermediary:

  • The taxpayer (investor) themselves
  • A family member or anyone related to the taxpayer
  • The taxpayer’s real estate agent, attorney, accountant, or financial advisor (if they provided services within the last two years)
  • A business partner or anyone with a financial interest in the transaction
Tax benefits of using a QI in O Fallon, IL

What Happens If the Investor in O Fallon, IL Holds the Proceeds?

If the investor or a disqualified person in O Fallon, IL takes control of the 1031 exchange proceeds, the IRS will invalidate the exchange. This means:

  • The investor in O Fallon, IL owes capital gains taxes on the sale.
  • Depreciation recapture taxes may be due.
  • The investor could also face a net investment income tax, depending on their tax situation.

How to Ensure a Successful 1031 Exchange in O Fallon, IL

To defer capital gains taxes successfully, the 1031 exchange funds must be held by a Qualified Intermediary who is independent and unrelated to the taxpayer. Always work with a reputable QI and consult a tax professional in O Fallon, IL to avoid costly mistakes.

Real estate investor in a 1031 exchange in O Fallon, IL

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Secure escrow account for 1031 funds in O Fallon, IL