Selecting a Qualified 1031 Intermediary
Choosing the right qualified intermediary (QI) is one of the most important decisions a real investor will make. A QI is a neutral third-party who facilitates 1031 exchanges according to the rules set forth by the IRS and courts. In all tax-deferred exchanges, a QI is required to hold the funds from a relinquished property before using them to acquire a replacement property. This ensures that the proceeds from the sale of the relinquished property are never received by the investor for the purposes of capital gains deferment.
There is a lot at stake for investors looking to utilize a 1031 exchange, considering the amount of money and complexity involved. Selecting an experienced and knowledgeable QI is paramount to the success of a 1031 exchange and the opportunity for an investor to enjoy its many benefits. In light of the QI’s essential duties, investors must select a trusted and reliable professional to fill this role and protect their real estate goals. The right QI should not only help facilitate a smooth and successful 1031, but also protect the investor’s best interests.
The QI is responsible for several critical elements of a 1031 exchange, including:
- Preparing all legal documents needed for a properly structured 1031 exchange.
- Safeguarding proceeds from sale of one property until the closing of new property.
- Ensuring the tax-deferred exchange complies with IRS rules and strict timelines.
- Continuous monitoring and advising.
- Maintaining adherence to state and federal requirements.
There is no national standard or federal supervision of QIs, with qualification requirements varying from state to state. Many QIs are not licensed, certified, or insured, which leaves many investors vulnerable to 1031 exchange failures and other financial losses. Without an experienced and reliable QI, investors are exposed to a number of legal and financial pitfalls.
Real estate investors should consider the following when selecting a QI for a 1031 exchange:
- Legal experience.
- Tax experience.
- Real estate and/or business experience.
- Insurance and funds management.
- Certifications and memberships.
- Status per state regulatory rules.
- Insurance and bond insurance coverage.
- Errors and omissions insurance coverage.
- Registration and licensing requirements.
- Qualified escrow and trust accounts for client funds.
- Quality control and security.
- Reputation for reliable guidance.
- Costs and fees.
It is important to note that a QI cannot be the investor, a relative of the investor, or an otherwise disqualified person. Anyone who has acted as an agent for the investor within the last two years before sale of the relinquished property is considered a disqualified person. Some examples of agents include attorneys, investment bankers or brokers, investor employees, accountants, and tax professionals.
Real estate savvy investors need a trusted professional to handle their legal needs and financial goals. Our team of professionals at 1031 Federal Exchange provide reliable comprehensive exchange services. Investors who use our 1031 exchange services are given the peace of mind knowing that every step of the process will be handled efficiently and in accordance with the law.
Our 1031 Qualified Intermediaries at 1031 Federal Exchange Can Help You
For streamlined services, contact our 1031 qualified intermediaries at 1031 Federal Exchange. Call us at 513-488-1135 or fill out our online form to schedule a free consultation and learn more about how we can help you achieve your real estate and financial goals. Located in Loveland, Ohio, we serve clients nationwide.