In this instance, the closing attorney may reimburse the earnest money to the exchanger. This action will create a need for additional funds from the qualified intermediary, effectively using more of the remaining proceeds. The qualified intermediary should avoid reimbursing earnest money to the exchanger directly. Related Parties Follow Different Exchange Rules. Buying replacement property from a related party can invalidate an exchange.
Related parties have certain specific holding periods.
Under the rules, the exchanger can sell relinquished property to a related party, but the related party must not dispose of the property for at least 24 months. If the related party disposes of the property before then, the gain from the original sale is triggered. However, because of concerns about abuse of related-party basis shifting, problems arise when the exchanger acquires his replacement property from a related party and the related party receives cash. Second Homes Don t Qualify. For real estate to qualify for exchange treatment, the property must be considered real property and meet the qualified-use test.