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In order to qualify for tax deferral under IRC § 1031, the taxpayer cannot have actual or constructive receipt of the proceeds from the relinquished property sale during the exchange period. See Treas. Reg. §1.1031(k)-1(f)(1). Constructive receipt occurs when the funds are credited to the taxpayer, set apart for them or otherwise made available so that they may draw on those funds at any time. It is not necessary for the taxpayer to have actual receipt of funds to be in constructive receipt of them. If an investor were to receive an uncashed check with the closing paperwork, this capital would become irreversibly taxable. To prevent actual or constructive receipt, a taxpayer must utilize a “qualified intermediary”, enter into a written exchange agreement that limits the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain the benefits of the proceeds except as provided under section (g)(6) of the Regulations. 

In order to qualify for tax deferral under IRC § 1031, the qualified intermediary cannot be the taxpayer’s agent, attorney, accountant, nor can the QI be the taxpayer’s family member, employee, financial connection, or any other authorized agent of the taxpayer. The qualified intermediary must be unbiased third party. Further, the QI cannot offer advice or become involved in any negotiations involving the transaction or in the disclosures between the Seller and Buyer as required by law. 

Taxpayers seeking an opinion of eligibility or questions relating to the calculation of capital gains exposure, adjusted basis, depreciation recapture, or disallowed credits must consult with a tax advisor, CPA, or LLM tax attorney to obtain an endorsement and or estimates of liability. 

Redfish Exchange’ s sole responsibility is to serve as the unbiased third party that facilitates the exchange by preparing the 1031 documents, including, but not limited to, assignments, notices of assignment, exchange and escrow agreements, verification of funds, and communication of the exchange closing instructions to the title company’s closing officers.