What Does The Qualified Intermediary Do, Exactly?

If you want to realize the tax deferral benefits of a 1031 exchange, you must follow stringent IRS rules, including the use of a qualified intermediary (also known as an Exchange Accommodator or Facilitator). This middle-person has a very specific role during the transaction. Technically, he or she is the individual who sells your property on your behalf, holds the sale proceeds and buys the new replacement property. He or she then transfers the deed to you.

But beyond technical responsibilities, what does the QI actually do during the exchange? A lot more than you might think.

• Coordinates with you and your advisors on the structure of the 1031 exchange.
• Prepares documentation related to the relinquished and replacement property.
• Provides instructions and the appropriate documents to the escrow or title company concerning the exchange.
• Holds the funds from the sale of the relinquished property and typically deposits these funds into a separate and insured account.
• Prevents you, the seller, from taking constructive receipt of any funds from the sale, as constructive receipt would negate the exchange.
• Holds the funds from the sale of the relinquished property during the 45-day identification period, and until the purchase of the replacement property occurs or you cancel the exchange.
• Receives and holds the written information about potential replacement properties.
• Transfers your funds for the purchase and disburses them to the title or escrow company for the purchase.
• Acquires the replacement property in the QI’s name and then conveys title to you (the seller or exchanger) by deed.
• Submits a complete accounting of the 1031 exchange for your records.

Understanding the full scope of the QI’s roles and responsibilities highlights the importance of selecting a very qualified and experienced individual for the role.

To learn more about 1031 exchanges or our qualified intermediary and replacement property locator services, please visit our website.