Like-Kind Exchanges Using Qualified Intermediaries

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If you transfer property through a qualified intermediary, the transfer of the property given up and receipt of like-kind property is treated as an exchange. This rule applies even if you receive money or other property directly from a party to the transaction other than the qualified intermediary.

A qualified intermediary is a person who enters into a written exchange agreement with you to acquire and transfer the property you give up and to acquire the replacement property and transfer it to you. This agreement must expressly limit your rights to receive, pledge, borrow, or otherwise obtain the benefits of money or other property held by the qualified intermediary.

Multiple-party transactions involving related persons. A taxpayer who transfers property given up to a qualified intermediary in exchange for replacement property formerly owned by a related person is not entitled to nonrecognition treatment if the related person receives cash or unlike property for the replacement property. (See Like-Kind Exchanges Between Related Persons, later.)

A qualified intermediary cannot be either of the following:

• Your agent at the time of the transaction. This includes a person who has been your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period before the transfer of property you give up.
• A person who is related to you or your agent under the rules discussed in chapter 2 under Nondeductible Loss, substituting "10%" for "50%."

An intermediary is treated as acquiring and transferring property if all the following requirements are met:

• The intermediary acquires and transfers legal title to the property.
• The intermediary enters into an agreement with a person other than you for the transfer to that person of the property you give up and that property is transferred to that person.
• The intermediary enters into an agreement with the owner of the replacement property for the transfer of that property and the replacement property is transferred to you.

An intermediary is treated as entering into an agreement if the rights of a party to the agreement are assigned to the intermediary and all parties to that agreement are notified in writing of the assignment by the date of the relevant transfer of property.

NOTE: The information provided herein has been collected from the IRS Website and is not guaranteed or endorsed by Heart of Seattle Homes.com or its affiliates. For more information, please contact www.irs.gov or a 1031 exchange qualified intermediary.

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