Do Qualified Intermediaries Pay Interest on 1031 Exchange Funds?

When you sell an investment property and initiate a 1031 exchange, your proceeds don't sit in your bank account — they're transferred to a Qualified Intermediary (QI), who holds them in escrow until you close on your replacement property. That period can last up to 180 days. A natural question follows: do qualified intermediaries pay interest on those funds, and if so, who gets it? The answer depends entirely on which QI you choose.

How Interest Works During a 1031 Exchange

When a QI holds your exchange funds, those funds are typically deposited into an interest-bearing account at a bank. The account earns interest throughout the exchange period — whether that's 30 days or the full 180.

What happens to that interest varies by QI. Some intermediaries retain all of it as part of their compensation model. Others pass a portion through to the investor. Current 1031 pays an industry-leading 3% interest rate on all exchange funds, regardless of transaction size.

It's worth noting that interest earned on exchange funds is not tax-deferred. Unlike the principal, which benefits from 1031 treatment, interest is taxable as ordinary income in the year it's received. That said, for large exchanges held over a significant period, the interest can be meaningful — often tens of thousands of dollars or more.

What to Ask Your QI About Interest

Before signing an exchange agreement, it's worth asking your QI three specific questions:

1. Will my funds earn interest? Not all QIs pass interest through to the investor.

2. Who receives the interest? Understand whether it goes to you, the QI, or is split.

3. What rate will my funds earn? Rates vary significantly from one QI to another.

These questions matter more on larger exchanges or longer holding periods, where the difference between a QI that keeps the interest and one that passes it through can amount to a substantial sum.

How Current 1031 Handles Interest

Current 1031 pays a flat 3% annual interest rate on all exchange funds, passed through directly to the investor. There are no minimums, no tiers, and no size requirements — a $500,000 exchange earns the same rate as a $10 million exchange. Funds are held in segregated escrow accounts and interest is paid at the conclusion of the exchange.

At 3%, a $2 million exchange held for the full 180 days earns approximately $29,500 in interest paid directly to you.

The Bottom Line: Do Qualified Intermediaries Pay Interest?

Yes, 1031 exchange funds can earn interest — and as the investor, you have every right to ask how that interest is handled before choosing a QI. Understanding a QI's interest policy is just as important as understanding their fee structure, since the two together determine the true cost of your exchange.

If earning interest on your exchange funds is a priority, make sure it's clearly spelled out in your exchange agreement before you proceed.

Ready to start an exchange with the highest interest rate QI? Get started at current1031.com or call us at (424) 634-1550.