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".

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