Qualified Exchange Accommodation Arrangements

Written By
Paul Tracy
Updated July 20, 2021

What are Qualified Exchange Accommodation Arrangements?

Qualified exchange accommodation arrangements are a strategy to simplify and assist with real estate exchanges made under Section 1031.

How Do Qualified Exchange Accommodation Arrangements Work?

For example, let's assume that John wants to sell his commercial property for $600,000. He originally bought the property for $400,000. He knows that selling his property will generate a $200,000 capital gain that is taxable.

If John does a Section 1031 exchange, he can defer this capital gains tax by replacing the property with a "like-kind" property: a different property that is similar in nature to the one he is selling. However, if John sells his property and more than 45 days goes by without obtaining a replacement property, John may be subject to the capital gains tax, as well as a state capital gains tax. To speed things up and ensure compliance, he can contact a qualified intermediary and make a qualified exchange accommodation arrangement. The qualified intermediary is similar to an escrow company in that it will transfer John's property to the buyer and transfer the replacement property to John.

By using a qualified exchange accommodation arrangement, an "accommodation party" holds John's property temporarily (or it can hold the replacement property temporarily). It is named as principal in the sale of the property and the later purchase of the replacement property.

Why Do Qualified Exchange Accommodation Arrangements Matter?

A Section 1031 exchange basically allows an investor to defer a capital gain or loss on the sale of real estate if the investor exchanges it for a "like-kind" property. By using a qualified exchange accommodations arrangement, an investor is able to avoid touching the proceeds from the sale of a property before the proceeds are reinvested, thus helping avoid paying any capital gains taxes and assisting in the transaction.

Ask an Expert
All of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Qualified Exchange Accommodation Arrangements.
Be the first to ask a question

If you have a question about Qualified Exchange Accommodation Arrangements, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Qualified Exchange Accommodation Arrangements, then please ask Paul.

Ask a question Read more from Paul

Read this next

Paul Tracy - profile
Ask an Expert about Qualified Exchange Accommodation Arrangements

By submitting this form you agree with our Privacy Policy

Don't Know a Financial Term?
Search our library of 4,000+ terms