The Three Responsibilities of a Qualified Intermediary

The role of the Qualified Intermediary is essential to completing a successful 1031 exchange. While the exchange process itself is relatively straightforward (once you understand the basic rules), the QI plays an indispensable role throughout the transaction.

Advises on rule compliance

One of the key elements of any successful exchange is ensuring that the investor meets the stringent timeframes set forth by the IRS. The first is to identify replacement property within 45 days of selling the relinquished property. The second is to close on the replacement property within 180 days of selling the relinquished property. The QI plays a vital role in this regard, in that he or she will keep the investor on track and manage the deadlines to ensure none are missed. As an expert in 1031 exchanges, a good QI will also offer advice and guidance on the other rules surrounding these transactions.

Holds exchange funds

Since the investor cannot have actual or constructive receipt of sale proceeds from the relinquished property (or even be allowed to benefit from the exchanged funds in any way during the transaction), the QI will be the fiduciary who holds onto the sale proceeds until closing on the replacement property occurs. Given the large sums involved in 1031 exchanges, this is a critical role which makes choosing your QI a very important decision.

Prepares exchange documents

Proper documentation is essential to a successful exchange. Investors will require an Exchange Agreement, Assignments of Purchase and Sale Agreements and other documents relevant to the exchange. The QI should be the individual preparing these documents and ensuring their validity. Also, since the QI is the entity to whom the investor provides notice of the potential replacement documents, he or she should also offer the investor blank Replacement Property Identification Notice forms (or something similar) so that the 45-day notice deadline can be met.

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