What is a Qualified Intermediary?
A Qualified Intermediary (QI), is someone who is an independent party that can facilitate your 1031 Exchange. It is a must to have an Intermediary in order to satisfy IRS Regulations. We are a professional provider of the mandatory mechanics of an exchange. Sometimes QI are referred to as “Accommodators” or “Exchange Facilitators.”
Our job as Intermediary is to legally facilitate your Section 1031 Exchange transaction. However, we cannot be your “agent” at the same time. Lawyers, Accountants, Realtors, or Financial Planner cannot be a QI if they are still practicing in their fields. IRS stipulates that anyone who has worked in an industry where they may be expected or required to give financial advice within the last two years is disqualified.
Basically, you acquire the services of a QI through a written exchange agreement. Once the sale of your property is complete, the funds go to your designated QI. You then declare your replacement property to your QI, who records the legal description. The QI holds the funds tax deferred until the sale of the replacement property closes, and the funds are dispersed to the Seller of the replacement property. IF ANY OF THESE EVENS FAIL TO OCCUR, THE TRANSACTION MAY BE SUBJECT TO TAXATION.
When you choose to get the services of a QI, the IRS does not consider the taxpayer to be in receipt of funds. Without a QI, IRS may not define a transaction as an exchange, therefore, making it ineligible for tax deferment status.
Why do you need a QI?
QI provides you all the necessary documents to establish your intent to do an exchange. The purpose of the paperwork is to create a structured exchange and insures that the end result complies with the laws and rulings.
Another reason
QI acts as the Accommodator of proceeds to protect the taxpayer from direct (actual) or indirect (constructive) receipt of the funds, either of which would invalidate the exchange.