A Qualified intermediary is a third party that enters into a written agreement with the tax payer, and facilitates the exchange for the taxpayer
- The written agreement between the taxpayer and the intermediary expressly omits the taxpayer's rights to receive, pledge, borrow or otherwise obtain the benefits of the money or property held by the intermediary.
- QI acquires relinquished property, transfers the relinquished property, acquires the replacement property, and transfers it to the seller.
- QI also performs tasks such as paperwork, set-up of holding account, and assuring correct legal actions
- QI does not have to receive or transfer title
- QI to be contacted BEFORE process begins of buy / sell. Some "custom" 1031 set-ups can be very complicated.
QI places funds from the sale into a separate account just for your transaction. QI also keeps the money "away" from you - if you were to hold the money it would not be in the manner of a 1031 and could be a taxable situation. As with any transaction, make sure you are working with well qualified professionals ... not all QI's are created the same. Also, chosing the wrong QI could be very risky, as they literally could leave with your money.
A qualified intermediary cannot be your agent at the time of the transaction. This includes a person who has been your employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period before the transfer of property you give up. (IRS Publication 544)
It is important to note that Steve Kappre is not a tax accountant or an attorney and only offers this information in regards to his personal experience. Consult your personal 1031 exchange consultant for your personal needs and scenario.
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