1031 Exchange - How to Decide Who to Use as a QI?

Rental Property Investor · Denver, CO · Member since 2016 · 86 posts · 160 votes

Looking for advice on how to select/choose a QI during a 1031 exchange? For those of you that have successfully completed a 1031, did you use a 1031 company or did you work directly with a QI or did you work with bank that had a QI?

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Dave FosterBusiness Member

Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes

@Lauren Hogan, That's a great question. a 1031 exchange is equally about strategy and case law and strict processes. Competence and relationship have to go hand in hand. Because 1031 has such a very specific set of regs. And because there are so many strategic and operational decisions for you as you move through one. A large company like you mention can be top notch operationally and handle your exchange perfectly. But can you talk to them? Are they accessible? And do they "get" you and your needs? The mom and pop down the street might be the nicest folk in the world. But do they have the years of experience needed to handle the strict processes that have to be in place.

So you've got to talk and vet. There's a number of QIs even here on BP. Check out profiles for references. Demonstrated experience is going to be a very good guide. And then make sure you feel comfortable that they get you and your needs and are not just about getting the forms right. There's a hundred ways to tailor a 1031 to really meet your specific needs.

Cost is always asked about. Here's an article we wrote for BP - https://www.biggerpockets.com/blog/how-much-does-a-1031-exchange-cost. It will give you a good start pricing wise. But at the end of the day don't worry about a hundred dollars either way. Get the QI who understands you and has been in the trenches long enough to understand the statute and the case law. There's a bunch out there. You'll be fine.

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Jennifer Gligoric
Specialist · Member since 2019 · 137 posts · 125 votes
6y
Originally posted by @Vincent Incopero:
@Ahmed Let's be clear as crystal about WHEN attorney's can act as a 1031 qualified intermediary as THIS IS COMMON MISCONCEPTION. The United States Treasury covers this in Reg. 1.1031(k)-1(k)(2) for those of you who like reading.
The Treasury Regulations state that someone who has acted as the taxpayer’s employee, attorney, accountant, investment banker, real estate agent or broker within two years prior to the date of the closing of the sale of the relinquished property is the agent of the taxpayer and is disqualified to act as the intermediary for that taxpayer. This means a seller of property CANNOT HAVE THEIR attorney, real estate agent, etc. hold their proceeds if they intend to complete a 1031 exchange. Also DISQUALIFIED ARE ALL THE ATTORNEY'S in the same firm as the seller’s attorney and any real estate agent in the same brokerage as the seller’s real estate agent. THERE ARE TWO EXCEPTIONS TO THE DISQUALIFICATION.
BOTTOM LINE - ALWAYS SELECT/ENGAGE an unrelated 1031 Intermediary company. Any extra work to do this is sure to be less than that of an IRS challenge or the complications and resulting tax implications from a failed 1031 exchange.

Thank you so much for posting this, we get this all the time & it really needs to be unrelated.

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John Acheson
Renter · Las Vegas, NV · Member since 2018 · 278 posts · 71 votes
6y
another way to go would be to setup a nonprofit,
donate the asset and pay no property taxes,
pay no income taxes, pay no state taxes, etc.
and work for the nonprofit for long term wages
on a mission to help the housing crisis :)
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Karen F.
Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
6y
I used Dave Foster (referred to him by others on biggerpockets) for our first 1031, which required a lot of handholding. I was very pleased with the service and the price.
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Tony Kim
Rental Property Investor · Los Angeles · Member since 2018 · 844 posts · 1k+ votes
6y
Originally posted by @Lauren Hogan:
Looking for advice on how to select/choose a QI during a 1031 exchange? For those of you that have successfully completed a 1031, did you use a 1031 company or did you work directly with a QI or did you work with bank that had a QI?

I used Dave Foster's company and couldn't be happier that I did. Why? There were a lot of reasons, but the most important one was for the security of my funds. Their company provides a competitive advantage when it comes to the safety of your money that no other company provides (at least none of the other ten companies I contacted provided). I would highly recommend contacting him directly to ask him about it. Also, Dave Foster is every bit as sophisticated an investor as some of the most seasoned professionals here.
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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
6y
Hi @Lauren Hogan,
There are a few Qualified Intermediaries that are licensed, regulated and audited. Granted, less than 1% of "QI's" today have any kind of government oversight. Investors searching for a QI should look for QIs that have some type of regulatory oversight to ensure they are dealing with a QI that is operating in a safe and sound manner. They hold way too much money on behalf of clients to trust anyone else.
Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.826 Reviews
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Bernard ReiszPro Member
CPA delivering RE Tax Tools: 1031 Exchange, SDIRA, 401(k), Cost Seg · New York City, NY · Member since 2017 · 581 posts · 563 votes
6y
@Ben Feder To expand on @Lauren Hogan's response. A Qualified Intermediary, or QI, is a key component of a 1031 exchange transaction that falls within IRS safe harbors.

I know that technical definition may just raise a whole new set of questions, so to preempt those...

When doing a "deferred 1031 exchange" in which you sell one property and only at later date acquire the replacement property, the taxpayer may not receive (or constructively receive) the proceeds of the initial sale. The QI's role is to hold the sales proceeds, pursuant to IRS regulations, so that they are not deemed received by the taxpayer.

Of course, the role of the QI has evolved with some of them enhancing your 1031 exchange experience and outcome in infinite ways - as outlined by @Michael Skoczylas, @Bill Exeter, and @Dave Foster.
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Ben Feder
Investor · Philadelphia, PA · Member since 2015 · 172 posts · 58 votes
6y
Originally posted by @Bernard Reisz:
@Ben Feder To expand on @Lauren Hogan's response. A Qualified Intermediary, or QI, is a key component of a 1031 exchange transaction that falls within IRS safe harbors.

I know that technical definition may just raise a whole new set of questions, so to preempt those...

When doing a "deferred 1031 exchange" in which you sell one property and only at later date acquire the replacement property, the taxpayer may not receive (or constructively receive) the proceeds of the initial sale. The QI's role is to hold the sales proceeds, pursuant to IRS regulations, so that they are not deemed received by the taxpayer.

Of course, the role of the QI has evolved with some of them enhancing your 1031 exchange experience and outcome in infinite ways - as outlined by @Michael Skoczylas, @Bill Exeter, and @Dave Foster.

Thank you! Very helpful.
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