What is a qualified intermediary?
A Qualified Intermediary (QI), also known as a 1031 exchange accommodator, is an independent party who facilitates tax-deferred exchanges as required by and referenced in Section 1031 of the Internal Revenue Code (IRC). The property seller signs an agreement instructing the 1031 exchange qualified intermediary to receive real estate like-kind sale proceeds and then to hold those proceeds until a replacement property is identified. Once the sale proceeds are used to purchase the replacement property, the 1031 exchange is completed. The property seller must never handle the actual proceeds or the option to leverage a 1031 tax deferred exchange will be voided.
The IRS says if you touch the money, you pay the tax. However, if you use a qualified intermediary to transfer the money from the sold property into the purchased property, you qualify for a tax free exchange. The qualified intermediary provides a “safe harbor” for your funds. A qualified intermediary will consult, structure, guide and document the exchange transaction from beginning to end. The IRS does not permit your accountant, attorney, or escrow company to be your qualified intermediary. So your qualified intermediary will work with your attorney and CPA to ensure your tax fee exchange goes smoothly.
(a) acts as the middle-man or “straw-man” in exchange transactions; (b) holds the proceeds of the sale of the relinquished property; (c) does any buying of replacement property or selling of the relinquished property necessary on behalf of the exchanger. The Intermediary typically acquires the relinquished property from the exchanger and sells it to its ultimate buyer, using the proceeds of the sales to acquire and convey to the exchanger the replacement property. Your Intermediary should be a corporation rather than an individual in order to protect against your Intermediary’s death, disability, incapacity, judgment liens, etc. Furthermore, intermediaries should offer mechanisms and procedures designed to protect your transactions, together with any funds held, through the use of letters of credit, third party guarantees, bonding and Errors and Omissions insurance. It is also extremely important for an Intermediary to employ proper custodial procedures for sale proceeds and other fund
