Many taxpayers ask: “Can 1031 exchange funds be used for an earnest-money deposit on the replacement-property?”
A qualified intermediary may advance exchange proceeds from the 1031 escrow account for earnest money deposits that will be credited toward the purchase of replacement property, provided that there is:
(1) An executed purchase agreement between the exchanger as purchaser and the seller of the replacement property that requires an earnest money deposit;
(2) The qualified intermediary is assigned the purchaser/exchanger’s rights (typically not obligations) in the purchase agreement;
(3) Written notice of this assignment of purchaser/exchanger’s rights in the purchase agreement is given to the seller. Typically seller acknowledges in writing receipt and consent to the assignment.
1031 Tip: Always make sure that the seller acknowledges receipt and consents to the assignment (in writing) and agrees that if the purchase agreement is terminated or canceled that the seller will return the earnest money deposit directly to the qualified intermediary and NOT to the purchaser/exchanger.
Contact CPEC1031, LLC
Contact the qualified intermediaries at CPEC1031 today for help with your next 1031 exchange of real estate. Our team has been facilitating exchanges in Minnesota and across the United States for more than two decades. We have the knowledge and professionalism to ensure that your exchange is a success and that you are able to defer 100% of your capital gains taxes. Reach out to our team at our downtown Minneapolis office today to learn more about how we can assist you.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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