A designated entity refers to a qualified intermediary (QI) or an exchange accommodation titleholder (EAT) who is authorized to facilitate the exchange of like-kind properties between the buyer and seller.
As per the IRS regulations, the seller of a property must transfer the proceeds from the sale to a QI or EAT, who then holds the funds until they can be used to acquire a replacement property. The QI or EAT acts as a neutral third party and ensures that the exchange is conducted in accordance with the rules and regulations of Section 1031 of the Internal Revenue Code.
In short, a designated entity is a crucial participant in a 1031 exchange, responsible for holding and transferring the funds and ensuring that the exchange is conducted in compliance with the IRS regulations.
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