1031 Qualified Intermediary

The U.S. Treasury adopted regulations in 1991 which govern Section 1031 “like-kind” Exchanges. Since then, many thousands of investors have utilized IRC 1031 exchanges to defer capital gain taxes on the sale of their business, investment or income property with the assistance of a professional Qualified Intermediary (“QI”).

Qualified Intermediary​ Explained

A QI handles the mandatory mechanics of a 1031 exchange for an investor. An exchange must be facilitated by an independent third-party according to the US Treasury Regulation 1031.1031(k)-1(g)(4)(iii). You’ll also hear a qualified intermediary referred to as a “facilitator” or “accommodator”.

It is imperative to have an exchange agreement and use a QI, so that the IRS does not consider a taxpayer to have taken constructive receipt of the proceeds from a sale/disposition. Upon closing, proceeds of the sale will go directly to the QI, rather than the taxpayer. The QI will then hold the funds until they are needed to acquire a replacement property or properties, at which time the QI will send the funds directly to the closing agent who deeds the property to the exchanger.

According to US Treasury Guidelines, a QI is Specifically Defined as:

1. A person who is neither disqualified nor the taxpayer entering the exchange.

2. A person under contract with the taxpayer in an Exchange Agreement. The QI has four specific responsibilities to the taxpayer, specifically to:

  • Acquire relinquished properties from the taxpayer.
  • Transfer the relinquished property.
  • Acquire the replacement property.
  • Transfer the replacement property to the taxpayer.

3. The Exchange Agreement contract must state that there is a limit to the taxpayer’s rights to receive, donate, borrow, or obtain benefits of money or other property which is held by the QI in some other method. This is in accordance with US Treasury Regulations §1031.1031(k)-1(g)(4)(i).

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More about Qualified Intermediary

By using a professional and expert QI, the taxpayer will encounter minimal difficulty in the process of properly documenting the exchange. Assistance from a QI is imperative for an exchange to be complete and on time. QIs are not regulated by the United States; thus, it is necessary to select a QI professional that has the utmost experience and security of funds. The QI must be knowledgeable and highly proficient for everything to go smoothly and in accordance with the IRS. Our company will provide the services of a high expertise QI who will conform with the regulations of the US Treasury and IRS Code.

Qualified IntermediaryA Qualified Intermediary Should:

  1.  Arrange with the taxpayer’s tax advisor and/or attorney to pass on the exchange transaction documents so that all IRS 1031 regulations and rules are understood;
  2.  Assignment Agreement(s), the Notice of Assignment(s), the Qualified Exchange Account Form, the Security of Funds Instrument, and any instructions for the closing officer to oversee that all 1031 exchange procedures have been properly followed;
  3.  Assist with the sale of relinquished property as well as the purchase of a replacement property;
  4.  Hold and secure the exchange proceeds for the Exchanger until the funds are needed in order to purchase replacement property;
  5.  Help guide and educate

Please, contact us today if you would like to speak with a professional Qualified Intermediary about costs and services available to facilitate your next 1031 exchange.

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