Understanding Real Estate

Tax-Deferred Exchanges

If there is a way to foul up your exchange and end up having to pay taxes unnecessarily, this is where it usually happens. For instance, if you or one of your agents (real estate agent or any other person working in your behalf), directly or indirectly, exerts any control over the money received from your sale before the entire exchange is completed, the IRS will DISALLOW THE ENTIRE EXCHANGE.
The object of an exchange is to keep you away from the money until you have acquired all of your replacement properties. If your attorney, CPA, real estate broker, escrow officer, or an employee touches the money; in the eyes of the IRS, it is as good as being in your pocket!! This is why you must hire a stranger to act as a "Facilitator", or "Qualified Intermediary" or "Trustee" to handle the exchange.
The IRS will consider any one who has an existing "AGENCY" or "Fiduciary" relationship with you as being under your control, which in turn, means your money being under your control also. Most state laws automatically consider an escrow officer or closing agent as being your agent, so you cannot use them to hold your money (i.e., hold the proceeds from your sale until you need it to acquire the replacement property).