A qualified intermediary is a must when it comes to 1031 exchanges. A QI is an independent party who helps you facilitate an exchange that is tax-deferred pursuant to the Internal Revenue Code under section 1031. It is important to note that the QI may not be the taxpayer (the person selling and buying the property) or a person that is a disqualified person.
There are very specific IRS regulations for 1031 exchanges, and the QI will ensure those are followed. If you, the taxpayer, put the proceeds of a sale into a separate bank account to use for the replacement property, you would disqualify the exchange; therefore, you need to use a QI.
The QI is part of the safe harbors established by the Treasury Regulations. The QI is there to acquire the relinquished property and transfer it to the buyer. The proceeds are held by the QI ensuring the taxpayer does not come into possession of the funds. The replacement property is purchased by the QI who then transfers it to you, the taxpayer, in order to complete the exchange within the time limits.
Additionally, the QI will be responsible for preparing the legal documents needed to complete the 1031 exchange and will advise you on how the transaction should be structured. There are four types of exchanges, and you will need to know which one should be used based upon your individual situation. Your QI will consult to determine which one fits your needs.
It is important to note that there is no requirement for a QI to be licensed, audited, regulated, or monitored in any capacity. As such, you want to be sure that you use one that you can trust to carry out the 1031 exchange. Doing your due diligence can have a very positive impact on your overall transaction.
With over 25 years of experience conducting 1031 exchanges, as well as being an attorney and CPA, we are a good choice to facilitate your exchange. Contact us today to let us help you with your transaction.