what are qualified exchange accommodation arrangements 
a qualified exchange accommodation arrangement is a tax strategy where a third party known as the accommodation party temporarily holds a real estate investor s relinquished or replacement property qualified exchange accommodation arrangements while still subjecting investors to strict guidelines for the sale and purchase of like kind properties increase flexibility in the timing of sales and simplify qualifications for the tax deferral understanding qualified exchange accommodation arrangementsa qualified exchange accommodation arrangement qeaa enables investors to comply with section 1031 of the internal revenue code which allows investors to defer taking a capital gain or loss on the sale of real estate as long as the relinquished property is replaced by a like kind property also known as a 1031 exchange this transaction is a tax deferred exchange that allows for the disposal of an asset and the acquisition of another similar asset without generating a tax liability from the sale of the first asset a qualified exchange accommodation arrangement is typically established by an intermediary who becomes the exchange accommodation titleholder eat the eat holds the property that was either relinquished or the property that was purchased to allow time for the other half of the transaction to be finalized a qualified exchange accommodation arrangement is essentially a holding arrangement for one of the two properties in a 1031 exchange this is one of the benefits of a qualified exchange accommodation arrangement since it allows for flexibility in giving up and receiving like kind properties so the properties can be held with the eat until both are ready for the 1031 exchange as a result the arrangement helps investors to defer realizing a capital gain or loss from the sale of real estate while allowing them to comply with section 1031 of the tax code however an exchange must be completed for a like kind property also there are limitations as to how long the property can be held within an eat and a tax professional should be consulted before attempting a 1031 exchange properties and qualified exchange accommodation arrangementsthis tax strategy was recognized by the irs in 2000 but previously was in use for many years irs approval of the procedure and establishment of specific qualification guidelines made investor compliance with 1031 exchange rules more straightforward because the purpose of such transactions was to hold a property temporarily they also were known as warehouse transactions before january 1 2018 a 1031 exchange could include the exchange of one business for another or one piece of tangible property for another however with the passage of the tax cuts and jobs act tcja in december 2017 a 1031 exchange is limited to real property in other words other asset exchanges including machinery equipment vehicles artwork collectibles patents and other intellectual property as well as intangible business assets no longer qualify for like kind exchange tax treatment 1 as a result a 1031 exchange can only involve an exchange of property with a like kind property and it must be for real estate held for investment or for productive use in a trade or business located in the united states properties are of like kind if they have the same nature or character even if they differ in quality in other words whether one property is improved or unimproved they will typically be considered like kind for example an apartment building would be considered like kind for another apartment building however real property in the u s is not considered like kind to property outside the u s taxes and qualified exchange accommodation arrangementsalthough tax liability is deferred and no gain or loss is recognized the 1031 exchange must be reported on form 8824 like kind exchanges form 8824 s instructions explain how to report the details of the 1031 exchange form 8824 helps the taxpayer calculate the amount of gain deferred as a result of the like kind exchange 2 section 1031 allows an investor to give or receive cash liabilities or other property that is not like kind in addition to the like kind real estate exchanged cash liabilities or other property that is not like kind and that is given or received in a 1031 exchange is called boot boot triggers taxable gains or losses in the year of the exchange in other words if a person also receives other not like kind property or money as part of the exchange it must be recognized as a gain to the extent of the other property and money received however the taxpayer cannot recognize a loss the taxable amount that is not deferred by section 1031 is the amount of the boot the taxable amount that is deferred by section 1031 is the capital gain or loss on the like kind real estate exchanged gain recognized because the boot was received is reported on form 8949 schedule d on form 1040 or form 4797 as applicable if depreciation must be recaptured then this recognized gain may have to be reported as ordinary income if under a qualified exchange accommodation arrangement the property is transferred to an exchange accommodation titleholder eat and held in a qeaa the eat becomes the beneficial owner of the property even though there s an intermediary the tax benefits of the like kind exchange still apply according to the irs property transferred from the eat to the investor may be treated as property that was received in an exchange and the property transferred to the eat may be treated as a property relinquished in an exchange this may also be true if the property due to be received is transferred to the eat before the property to be relinquished is transferred to the accommodation titleholder 3 