A PARKING ARRANGEMENT in a 1031 exchange refers to a temporary holding of the proceeds from the sale of a property that is being exchanged, before it is invested in a new property. This arrangement is typically facilitated by a qualified intermediary.
Key-Takeaway
- Parking arrangements are used to temporarily hold the proceeds from the sale of a property that is being exchanged.
- Parking arrangements must be facilitated by a qualified intermediary.
- Parking arrangements allow investors to defer paying taxes on the capital gains from the sale of a property.
Example
Let’s say an investor sells a property for $500,000 and wants to defer paying taxes on the capital gains by participating in a 1031 exchange. The investor can use a parking arrangement to temporarily hold the proceeds from the sale until a suitable replacement property is identified and purchased.
Tips
- Make sure to work with a qualified intermediary to set up a parking arrangement.
- Carefully review all documents related to the parking arrangement to ensure that all terms and conditions are clearly understood.
- Consider all tax implications of using a parking arrangement when planning your 1031 exchange.
Recommendations
- Work with a qualified intermediary to ensure that all exchange transactions are structured in the most tax-efficient manner.
- Consider all tax implications when planning your 1031 exchange, including the impact of a parking arrangement.
- Seek professional advice from a tax expert to ensure that your 1031 exchange is structured in the most tax-efficient manner.
