Constructive receipt is the IRS doctrine that treats a taxpayer as receiving income when it becomes available to them — even if they haven't physically taken it. Triggering constructive receipt voids a 1031 exchange.
In 1031 context, if sale proceeds become available to the exchanger (not held by a qualified intermediary), constructive receipt is triggered — regardless of whether the exchanger actually spends the money. The QI structure prevents constructive receipt by holding funds in a manner the exchanger cannot access.
For LA multifamily 1031 exchangers, constructive receipt is the silent killer of improperly structured exchanges. Common scenarios: sale proceeds briefly touch a seller account before being transferred to QI, or seller has access rights to funds during the exchange. Both void the exchange.
From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.
Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.
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