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What is a QI (Qualified Intermediary) -

why do you need one and how to find a good one?

A Qualified Intermediary (QI), also referred to as an Accommodator or Facilitator, is an entity that facilitates Internal Revenue Code Section 1031 tax-deferred exchanges. The role of a QI is defined in Treas. Reg. §1.1031(k)-1(g)(4)

Understanding the role of a qualified intermediary

Broadly speaking, a QI performs three groups of tasks:

  1. Prepares the legal agreements necessary to properly structure a 1031 exchange. 
  2. Holds and safeguards your money from the sale of a property (i.e., your 1031 proceeds) until you close on a replacement property.
  3. Ensures that your exchange complies with the Internal Revenue Service’s rules.

In most circumstances, the use of a Qualified Intermediary is required to successfully complete an IRC Section 1031 tax-deferred exchange. Treasury Regulation §1031.1031(k)-1(g)(4)(iii) refers to the entity that facilitates a 1031 exchange as a Qualified Intermediary. A Qualified Intermediary is defined as follows…

A Qualified Intermediary (“QI”) is a person who:

  • Is not the taxpayer or a disqualified person;
  • Enters into a written agreement with the taxpayer (the exchange agreement) under which the qualified intermediary:  
    • Acquires the relinquished property from the taxpayer;
    • Transfers the relinquished property to the buyer;
    • Acquires the replacement property from the seller;
    • Transfers the replacement property to the taxpayer.
    • The exchange agreement must expressly limit the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain benefits of money or other property held by the qualified intermediary. (See Treasury Regulations §1031.1031(k)-1(g)(4)(i).)

The use of an experienced qualified intermediary can significantly reduce the complexity of an exchange by assuring the proper execution of required documentation. The qualified intermediary industry is not regulated nationally. Consequently, the careful selection of the qualified intermediary is essential to ensure the highest level of expertise and security of funds.

What should an investor look for in a qualified intermediary?

Early Involvement
Insurance & Bonding
Thorough Exchange Agreement
Conservative Account Structures

If you are unsure of the role of Qualified Intermediary or why you need a Qualified Intermediary, please give Exclusive Financial Resources a call at (980) 242-2533, email Louis Herford at LHerford@Exclusive1031.com or schedule a 15-minute discussion here.