One of the biggest mistakes people make with a 1031 exchange is trying to do it without an independent exchange agent. The IRS actually requires you to use a Qualified Intermediary to handle the exchange for you.
Key Takeaways
- The IRS requires the use of a Qualified Intermediary to complete a 1031 exchange — it isn’t optional.
- A taxpayer’s existing realtor, attorney, or CPA cannot serve as the Qualified Intermediary, since the role requires true independence from the transaction.
- The Qualified Intermediary handles the sale contract, holds transaction funds, and manages the identification and purchase of the replacement property.
- The Qualified Intermediary must be engaged before the relinquished property sells — bringing one in afterward disqualifies the exchange.
- A Qualified Intermediary also manages the paperwork the IRS requires to finalize and report the exchange.
And here’s what catches a lot of investors off guard: most of the people who’d normally help with a real estate deal can’t help with this one. Your realtor, your attorney, your CPA, anyone already involved, can’t serve as your intermediary. The person has to be truly independent and qualified under the IRS rules.
How a Qualified Intermediary Helps
At WealthBuilder 1031, we step in as your 1031 exchange agent to help you defer your capital gains taxes. Our qualified intermediaries stay with you through every step, including:
- Setting up the right contracts with your real estate agent to sell the property you’re relinquishing.
- Putting together a sales agreement that meets IRS guidelines once you’ve got a buyer.
- Handling all the funds tied to the transaction.
- Guiding you through closing.
- Helping you find and purchase your replacement property inside the IRS deadlines.
- Finalizing the agreements to buy the replacement property and defer your gains.
- Filing the paperwork the government requires.
Start the Process Early
One thing to remember: your intermediary has to be involved from the very beginning. If you wait until the property has already sold to bring one in, it’s too late, and the deal won’t qualify as a 1031 exchange anymore.
So if you’ve got questions, or you need a qualified intermediary, we’re here for you. Our team of attorneys and financial professionals will walk you through every step and make sure your exchange is handled legally and correctly. Give us a call today at 888-508-1901.
Disclaimer: This content is for informational purposes only and does not constitute legal or tax advice. Consult your tax advisor or attorney for advice specific to your situation.
Chris Peterson — Texas Licensed Attorney & Founder, WealthBuilder 1031
Chris is the Owner and President of WealthBuilder 1031 and a licensed Texas attorney. He graduated from Wheaton College and the University of Texas School of Law and speaks regularly to realtors, accountants, and title companies about 1031 exchanges. Learn more →
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