The short answer
Constructive receipt is the rule that money credited to your account, set apart for you, or otherwise made available so you could draw on it is treated as received, even if you never take it. In a delayed exchange, actual or constructive receipt of proceeds before you receive replacement property makes the deal taxable in whole or in part under Reg. section 1.1031(k)-1(f). That is why proceeds go to a qualified intermediary under an agreement that strictly limits your access.
At a glance
| The test | Credited, set apart or available on demand counts as received |
|---|---|
| Full proceeds received | The transaction is a sale, not an exchange |
| Your agent's receipt | Counts as your receipt |
| Earliest safe access | After day 45 if nothing was identified, or after all replacement property is received |
The term comes from the general income tax regulations and applies to exchanges whatever your accounting method
Reg. section 1.451-2(a) says income not actually in your possession is constructively received when it is credited to your account, set apart for you, or made available so you could draw on it, including on notice. Income is not constructively received if your control is subject to substantial limitations or restrictions.
Reg. section 1.1031(k)-1(f)(2) applies that rule to exchanges without regard to your method of accounting. You are in constructive receipt the moment restrictions lapse, expire or are waived, and receipt by your agent is receipt by you.
If you receive the full consideration before receiving replacement property, the transaction is a sale even if you later buy like-kind property. Receiving part of it makes that part taxable, the result described under partial exchange.
Worked example: one right to demand cash turns the exchange into a sale
The regulation's own example: a taxpayer transfers unencumbered property worth $100,000 under an exchange agreement. The other party must buy and deliver identified replacement property, but at any time the taxpayer may demand $100,000 in cash instead on notice.
That unrestricted right puts the taxpayer in constructive receipt of $100,000 on the day of the transfer, so the deal is a sale, even though replacement property is later delivered. Had the agreement barred any demand for payment until after the exchange period ended, there would be no constructive receipt unless that restriction lapsed or was waived.
The same logic applies to a wire. If the buyer's funds land in your own account or your attorney's trust account, they are in your hands or your agent's; see proceeds wired to the wrong place.
Where it bites: the (g)(6) limits, early releases and borrowing against the funds
The safe harbors in Reg. section 1.1031(k)-1(g) for qualified escrow accounts, qualified trusts, qualified intermediaries and interest work only if the agreement says you have no right to receive, pledge, borrow or otherwise obtain the benefits of the money before the exchange period ends. The holder must not be you or a disqualified person.
The agreement may release funds after day 45 if you identified nothing, after you receive all identified replacement property you are entitled to, or after a written, material contingency beyond your control occurs after day 45. Any other release, a pledge for a loan, or an early payout ends the protection; see touching or borrowing exchange funds and interest on exchange funds.
Ordinary closing items do not count. Prorated rents and transactional costs such as commissions, prorated taxes, transfer taxes and title fees are disregarded under (g)(7).
Related questions
Can I get my money back if I do not find a replacement property?
Yes, if the exchange agreement allows it, but not before day 45. Under Reg. section 1.1031(k)-1(g)(6), funds may be released after the identification period if you identified nothing; see when a QI releases funds.
Does receiving prorated rent at closing break the exchange?
No. Items a seller receives that are not part of the amount realized, such as prorated rents, are disregarded in applying the safe harbors.
Can an escrow or title company hold the proceeds instead of an intermediary?
Only as a qualified escrow account or qualified trust: the holder cannot be you or a disqualified person, and the agreement must carry the same limits on receiving, pledging or borrowing the cash.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.