Escrow is a confusing topic for many taxpayers – especially those contemplating a 1031 exchange of real estate. Many people we work with have questions about the rules surrounding escrow accounts in a 1031 exchange. In this article, we are going to offer up a few tips for funding escrow in a 1031 exchange.
One of the most common questions we hear when it comes to escrow accounts and 1031 exchanges is – “can I fund my escrow account with my 1031 exchange sales proceeds from my relinquished property?” This is an excellent question that many people run into during a like-kind exchange.
If you use any of your net proceeds to fund an escrow account, that will likely be considered taxable boot and your 1031 exchange will not be 100% deferred. The best course of action is to fund your escrow account with cash that you bring to the closing table. This will keep everything separate and allow you to defer all you’re your capital gains taxes.
1031 Exchange Services in the United States
Consult with a qualified intermediary about your 1031 exchange today if you are considering a like-kind exchange of property. Working with an intermediary as early in the process as possible is essential to the success of an exchange. We make everything as easy as possible for you by preparing your documents and answering your questions. Give us a ring today to learn more about how we handle exchanges and to get your exchange of real estate started! We provide 1031 exchange services to clients throughout the United States.