How Exchange Funds May Be Used

As a QI, we are permitted to use exchange funds only for the purchase of replacement property, including payment of earnest money deposits on behalf of the taxpayer. If exchange funds will be used to make an earnest money deposit, it’s a good idea for the purchase and sale agreement to include language addressing the buyer’s 1031 exchange, stating that the deposit will be applied to the purchase price and that, in the event it must be returned before the 180-day exchange period ends, the escrow agent must return it to the QI and not to the buyer (the taxpayer). In the alternative, the taxpayer can fund earnest money amounts out-of-pocket. If we are holding enough exchange funds to do it, we can replace those funds by wiring a like amount to the purchase closing and directing the closing agent to return the original earnest money deposit(s) to the taxpayer.

Strategic 1031 Exchange Advisors, LLC, a Georgia limited liability company, is a qualified intermediary for 1031 exchanges only. It is not an accounting firm, law firm or registered investment professional and therefore is not qualified to give accounting, tax, legal or investment advice, and, further, cannot act in an agency capacity on behalf of its clients. This website is for informational purposes only and does not and is not intended to constitute accounting, tax, legal or investment advice. We advise you to consult with your accountant, attorney and investment professional on all matters related to your exchange.