What is a Qualified Intermediary? 

Qualified Intermediary Explained 

A Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary (QI) is an independent third party that facilitates Internal Revenue Code (IRC) Section 1031 tax-deferred exchanges. Prior to the issuance of the IRS Treasury Regulations in 1991, the buyer was an integral part of the Sellers choice to do an exchange.  The regulations allowed for a Qualified Intermediary to fill that role and be the party with whom the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger is exchanging with. According to the Regulations for an intermediary to be considered “qualified”, it cannot be an agent of the exchanger at the time of the transaction. The Qualified Intermediary must enter into a written agreement for the exchange with the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger , as well as acquire and transfer the Relinquished and Replacement Properties on behalf of the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger , as required by the terms of the exchange agreement.  The acquisition of the sale property, referred to as the Relinquished Property, and the new property being purchased, referred to as the Replacement Property, can be accomplished in a number of ways. However, it is typically satisfied under the rules by the exchanger assigning the rights of the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger under the contracts and providing notice to all parties of such assignment. 

Role & Purpose of a Qualified Intermediary: 

The role of the Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary is to act as a middleman in the real estate transaction, handling the acquisition and transfer of property and ensuring that the many specific detailed rules set forth in the regulations are being followed and the integrity of the exchange is intact to achieve tax deferral.  

It is also necessary under the rules that the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger avoid actual or constructive receipt of the proceeds of the Relinquished Property sale during the period of time between the sale and the purchase.  The Regulations suggest several ways to ensure the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger is not deemed to have access to those funds, but generally it is satisfied by the Qualified Intermediary holding those funds on behalf of its client, the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger . That is a secondary role it fills. 

In short, the purpose of a Qualified Intermediary is to act as a party who the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger can actually exchange with and to keep the transaction in compliance with the many details set forth in the Regulations. Secondarily, it acts as a convenient party to safeguard the exchange funds during the transaction and ensure the (“Exchangor” or “Taxpayer”) Person intending to conduct a 1031 tax deferred exchange, who transfers a relinquished property and thereafter receives a replacement property. Exchanger is not in actual or constructive receipt of them.    

Benefits of a Qualified Intermediary: 

As noted above, the Qualified Intermediary offers many different benefits in the Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange process, as it is a nuanced topic that requires deep knowledge. A few advantages to having a QI include their expert knowledge on the rules and regulations of Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s, as well as IRS guidelines, ensuring compliance and reducing the risk of disqualification. They safeguard the funds generated from the sale of the Relinquished Property, holding them in a secure account to prevent direct receipt by the Exchanger. A QI ensures that the Replacement Property is acquired within the strict 180-day timeframe required by the IRS. This time management allows investors to successfully complete the exchange and defer capital gains tax. 

Choosing a Qualified Intermediary: 

Selecting the right Qualified Intermediary is essential for the success of a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange . It's important to consider several critical factors when making this decision: 

Experience: Seek out an established QI with a demonstrated track record and extensive experience in facilitating Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange s. A seasoned QI will possess the necessary expertise to guide you through the process and minimize potential risks. Seek QIs with a deep bench of Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange experts including staff attorneys, CPAs, as well as Certified Exchange Specialists®. 

IRS Compliance: Ensure that the Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary you select strictly adheres to all IRS regulations and guidelines. Request and research references and testimonials to verify their compliance history and credibility.  

Security and Protection: Assess the level of security and protection provided by the QI. Verify their use of reputable and highly rated banking institutions to hold the funds. Inquire about the QI's fidelity bond and errors and omissions coverage to protect against unforeseen circumstances. 

Customer Service: The chosen Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary should prioritize exceptional customer service. They should be readily available to address your questions and concerns throughout the exchange process. 

Professional Affiliations: Look for a QI affiliated with professional organizations such as the Federation of Exchange Same as intermediary, facilitator, or Qualified Intermediary. The party who facilitates a tax-deferred exchange by acquiring and selling property in an exchange to aid the taxpayer in complying with Section 1031 and all applicable rules. Accommodator s (FEA). Membership in such organizations indicates a commitment to maintaining industry standards and best practices. 

When entering a Internal Revenue Code Section 1031 states that "no gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment if such property is exchanged solely for property of like kind which is to be held for productive use in a trade or business or for investment." 1031 Exchange , it is crucial to involve a Qualified Intermediary. They facilitate and handle the exchange of funds and property while ensuring regulatory compliance, providing for tax-deferred status. While it is not only paramount to involve a QI in your transaction, choosing the right one is just as important. As a leading Qualified Intermediary, learn more about Accruit’s boutique-style service and factors in our success here. 

The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified A person acting to facilitate an exchange under section 1031 and the regulations. This person may not be the taxpayer or a disqualified person. Section 1.1031(k)-1(g)(4)(iii) requires that, for an intermediary to be a qualified intermediary, the intermediary must enter into a written "exchange" agreement with the taxpayer and, as required by the exchange agreement, acquire the relinquished property from the taxpayer, transfer the relinquished property, acquire the replacement property, and transfer the replacement property to the taxpayer. Intermediary , and as such does not offer or sell investments or provide investment, legal, or tax advice.