Fairhaven Realty
Fairhaven Realty, a br of Lakeway Realty, Inc.
Q & A - 1031 Exchanges
Posted on December 18, 2009
Bring out your umbrellas! This Friday, December 18, 2009 finds the weather rainy and gray in Bellingham, WA.
CREATIVE PUNS FOR “EDUCATED MINDS”
- Two hats were hanging on a hat rack in the hallway. One hat said to the other, “You stay here; I’ll go on a head.”
- A small boy swallowed some coins and was taken to a hospital. When his grandmother telephoned to ask how he was, a nurse said, “No change yet.”
- I thought I saw an eye doctor on an Alaskan island, but it turned out to be an optical Aleutian.
QUESTIONS AND ANSWERS ON 1031 TAX EXCHANGES (continued from previous blogs).
Why is a Qualified Intermediary needed?
The exchange ends the moment the taxpayer has actual or constructive receipt (i.e. direct or indirect use or control) of the proceeds from the sale of the relinquished property. The use of a QI is a safe harbor established by the Treasury Regulations. If the taxpayer meets the requirements of this safe harbor, the IRS will not consider the taxpayer to be in receipt of the funds. The sale proceeds go directly to the QI, who holds them until they are needed to acquire the replacement property. The QI then delivers the funds directly to the closing agent.
Can the taxpayer just sell the relinquished property and put the money in a separate bank account, only to be used for the purchase of the replacement property?
The IRS regulations are very clear. The taxpayer may not receive the proceeds or take constructive receipt of the funds, in any way, without disqualifying the exchange.
*Information gathered/quoted from the National Association of REALTORS® online library-1031 Exchange
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