Qualified exchange accommodation arrangements can be extremely beneficial for real estate investors who are looking to defer a realized capital gain or loss from the sale of their property. This arrangement allows the investor to move forward with their intended sale of the property, while still qualifying for the like-kind exchange in order to defer the realized capital gain or loss.

The basics of a qualified exchange accommodation arrangement are as follows. The investor will enter into a qualified exchange agreement with an independent qualified intermediary (QI) who will act as a middleman in the transaction. The investor will then transfer full ownership of the property they are selling to the qualified intermediary. The proceeds of the sale will then be held in escrow by the qualified intermediary and the investor will have 45 days to identify potential replacement properties.

Once the investor has identified potential properties they would like to replace the relinquished property with, they will tell the qualified intermediary who will then set up a qualified exchange accommodation arrangement. This arrangement allows the investor to acquire the new property without actually receiving the proceeds of the old sale.

Once the transaction has been completed, the escrow account that was set up will be emptied and the investor will receive the proceeds from their sale. This entire transaction allows investors to defer taking a capital gain or loss on the sale of their property, while still completing the like-kind exchange.

For an investor to successfully complete a qualified exchange accommodation arrangement, the QI and the investor must meet certain qualifications and criteria before entering into the agreement. The investor must adhere to the 1031 exchange Internal Revenue Code (IRC) Section 1031 which outlines all rules and regulations associated with the like-kind exchange. Additionally, the QI must be an independent third-party and must be registered with the Internal Revenue Service.

Overall, qualified exchange accommodation arrangements can be extremely beneficial for real estate investors looking to defer a realized capital gain or loss from the sale of their property. By adhering to the rules set out by the IRC Section 1031, investors can complete a like-kind exchange by transferring the ownership of their property to a qualified intermediary, and allowing for a qualified exchange accommodation arrangement to be created. This allows investors to defer the capital gain or loss on their sale, while still successfully completing their intended exchange.