Significant Restrictions On QI When Returning Exchange Funds To A Taxpayer

It is important to understand that the IRS places significant restrictions on a QI as to what it can and cannot do with the exchange proceeds during the exchange process. Treasury Regulation 1.1031(k)-1(g)(6) (often referred to as the “G6” Regulations) requires that the taxpayer cannot receive his or her exchange proceeds until the termination or completion of the exchange. If the taxpayer does not identify potential replacement property, the exchange is deemed to be terminated after the 45^th day. Thus, in no event can the taxpayer receive the exchange proceeds during the 45-day identification period. However, if the taxpayer has not identified replacement property by the deadline, we can return exchange funds on the 46th day.

In the event the taxpayer properly identifies replacement property, but fails to purchase it, he or she may receive the exchange proceeds after the 180^th day. Additionally, if the taxpayer acquires all identified replacement property after day 45, but prior to day 180, and we are still holding unused exchange proceeds, the taxpayer immediately will be entitled to the remaining amount and the exchange will be completed.

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.