Qualified Exchange Accommodation Arrangements


DEFINITION of 'Qualified Exchange Accommodation Arrangements'

A strategy used in some 1031 exchanges where a third party, known as an "accommodation party," temporarily holds the real estate investor's relinquished or replacement property. The purpose of this arrangement is to help investors comply with section 1031 of the Internal Revenue Code, which allows investors to defer taking a capital gain or loss on the sale of real estate as long as the relinquished property is replaced by a "like-kind" property. Qualified exchange accommodation arrangements, while still subjecting investors to strict guidelines for the sale and purchase of like-kind properties, increase flexibility in the timing of the sales and simplify the investor's ability to qualify for the tax deferral.

BREAKING DOWN 'Qualified Exchange Accommodation Arrangements'

This strategy was in use for many years, but was not formally recognized by the IRS until 2000. The IRS's approval of the procedure and establishment of specific qualification guidelines made investors' compliance with 1031 exchange rules more straightforward.

Because the purpose of such a transaction is to hold a property temporarily, these are also known as "warehouse transactions".

  1. Like-Kind Property

    Any two assets or properties that are considered to be the same ...
  2. Boot

    Cash or other property added to an exchange or other transaction ...
  3. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
  4. Like-Kind Exchange

    A tax deferred exchange that allows for the disposal of an asset ...
  5. Reverse Exchange

    A type of property exchange wherein the replacement property ...
  6. Earnings Stripping

    Earnings Stripping is a commonly-used tactic by multinationals ...
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