1031 Tax Exchange Escrows

Escrow plays an important part in facilitating a 1031 Tax Exchange. Escrow processing cannot deal with the legal or tax aspects of the 1031 Tax Exchange, but some general observations can guide the escrow process to insure a smooth successful transaction.

The structure of the 1031 Tax Exchange is usually determined by the exchangers legal council or exchange specialist, not the escrow holder. The escrow officer is a follower of instructions, not an originator of them.

Most 1031 Tax Exchange transactions involve the use of an Accommodator. This Accommodator, or Qualified Intermediary, either accepts title to the property for a temporary period of time or holds money for a temporary period of time (depending on whether it is a traditional or Reverse 1031 Tax Exchange). The Accommodators instructions fall in between the buyers and sellers escrow instructions. On the “first leg” of a 1031 Tax Exchange, the accommodator will accept the money on behalf of the seller. On the “second leg” of a 1031 Tax Exchange, the accommodator will place money into an escrow account on behalf of the buyer.

Most escrow companies hire the services of an accommodator in performing an exchange. Their fees tend to be very nominal, and their experience and expertise in the area are very helpful in insuring a smooth and successful transaction. Accommodators help the transaction to be accepted by the IRS as valid.