If this situation occurs, an owner should contact their tax advisors for more details. Under the 3 property rule, the taxpayer can identify up to 3 properties of any value within the 45 day period and receive one or more of these properties within the 180 day period to complete the exchange. There is also a third option which is not frequently used and will not be discussed in this article. It is very important that the seller use a qualified intermediary so that the seller is not treated as being in control of the sales proceeds. If the seller is treated as having constructive receipt of the sales proceeds, then the IRS will not treat the transaction as a tax-deferred exchange, but will instead treat the transaction as a taxable sale.
Qualified intermediaries provide the necessary exchange agreements and accommodate the exchange.
Disqualified persons are generally persons that would be treated as the exchanger's agent. A taxpayer should use a professional intermediary company and not a friend to act as the qualified intermediary. Intermediaries charge for their services based on the number of properties being exchanged and the complexity of the exchange. Taxpayers can request that the intermediary pay them interest on their money during the 180 day exchange period. To be qualifying property, the property must be either held for investment or used in a trade or business.