Do I Need a Qualified Intermediary for a 1031 Exchange?

A qualified Intermediary (QI) is an unrelated party to a real estate transaction who facilitates a tax-deferred, like-kind, or 1031 exchange. The QI has no economic interest in the transaction except for any compensation, or exchange fee, they may receive for facilitating the exchange as defined in Section 1031 of the Internal Revenue Code (IRS).

The IRS requires the use of a QI for a 1031 exchange, which involves several moving parts. The QI serves as an accommodator and is involved in a 1031 exchange in the following ways:

  • Creating an exchange agreement between the QI and the investor.
  • Purchase and sales contracts are assigned to the QI.
  • Sale proceeds are held by the QI in a secure escrow bank account until they are needed to acquire the replacement property.
  • QI receives the client’s identification of the replacement property on or before the 45th day after closing.
  • QI uses the proceeds to acquire the identified replacement property and transfer the title in your name.
  • QI gives notification to all parties to the transaction.

The IRS has strict rules, and the execution of a 1031 is a complex process. While real estate investors may be able to manage parts of the transaction, they cannot handle all of it, making it advisable to have guidance throughout the entire process. Each investor has their own skillset, which determines how much of the planning they can handle on their own. However, the IRS code states that an unrelated third party must document and manage the 1031 exchange as part of the transaction.

How Do I Select a QI?

A QI will document all the transactions of your exchange and hold your proceeds as part of rules set forth by the IRS. During the exchange process, you will need the services of several real estate professionals, including a lawyer, a title company, an accountant for tax reporting, and likely a few real estate agents.

A QI is another professional required to take part in a 1031 exchange. In addition to their mandated role, a carefully chosen QI will also navigate you through the overall process.

Because your QI must be an unrelated third party and will be holding a significant amount of cash on your behalf, it is recommended to use someone who:

  • Uses dual signatory segregated, qualified escrow accounts for your exchange fund.
  • Guarantees exchange documentation.
  • Provides support in case of an IRS audit at no charge.
  • Can answer questions and is readily accessible.
  • Has verifiable, extensive experience and knowledge.
  • Maintains a solid reputation in the field.

Successful 1031 exchanges are difficult to accomplish without proper tax and legal guidance.

Our 1031 Exchange Intermediaries Provide Comprehensive Service During Your Tax Exchange

Our 1031 exchange intermediaries facilitate 1031 exchanges using tax strategy and compliance, exchange management, and consulting. Call us at 513-450-3039 or contact us online to schedule a free consultation. Located in Loveland, Ohio, we proudly represent clients nationwide.