Qualified Exchange Accommodation Arrangements

AAA

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.

INVESTOPEDIA EXPLAINS '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".

RELATED TERMS
  1. Like-Kind Property

    Any two assets or properties that are considered to be the same ...
  2. Like-Kind Exchange

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

    A type of property exchange wherein the replacement property ...
  4. Section 1031

    A section of the U.S. Internal Revenue Service Code that allows ...
  5. Boot

    Cash or other property added to an exchange or other transaction ...
  6. Guideline Premium And Corridor ...

    A test used to determine whether an insurance product can be ...
Related Articles
  1. Home & Auto

    Can Real Estate Stabilize Your Portfolio?

    History suggests that real estate can provide diversification and a hedge against inflation.
  2. Options & Futures

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  3. Active Trading

    Trade Properties To Keep The Taxman At Bay

    Like-kind exchanges can mean a much lower tax bill on real estate for savvy investors.
  4. Personal Finance

    Value-Added Tax (VAT)

    Value-added tax, or VAT, is a tax on the added value of a good as it moves through the supply chain to the end consumer. In effect, the tax is levied on the gross margin at each point in the ...
  5. Retirement

    Who is exempt from paying Social Security taxes?

    Learn about the groups of people who qualify for exemption from Social Security taxes, and explore the process of applying for exemption.
  6. Taxes

    Can you write variable costs off your taxes?

    Learn if you can deduct variable or fixed costs from your business taxes and learn more about business deductions, cost of goods sold and gross profit.
  7. Bonds & Fixed Income

    What is the lowest capitalization rate before an investment becomes unprofitable?

    Learn about different levels of profitability associated with investments featuring similar capitalization rates. Explore how value changes affect rates.
  8. Taxes

    What are the tax incentives or disincentives to vertical integration?

    Merging companies through vertical integration can provide companies in the United States with a marginally advantageous position in terms of taxation.
  9. Investing Basics

    How do REIT managers use capitalization rate to configure their portfolios?

    Learn how REIT managers use capitalization rates to help assess risk and identify properties as potential purchase and sale candidates.
  10. Investing Basics

    Are arm's length transactions always better than transactions not at arm's length?

    Transactions not at arm's length have real tax and other consequences for individuals and businesses, but they are not necessarily always worse.

You May Also Like

Hot Definitions
  1. Multiplier Effect

    The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends ...
  2. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  3. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  4. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  5. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  6. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
Trading Center