Why You Need a Qualified Intermediary to Complete a 1031 Exchange
If you’re planning a 1031 exchange, you’ll need a Qualified Intermediary, or QI, on your team. The QI keeps everything on schedule and on track. They act as the go-between for the buyer and seller and make sure the exchange follows the rules. Honestly, without one, completing an exchange is just about impossible.
Key Takeaways
- A Qualified Intermediary must be an independent party — someone with no financial stake in the transaction and who isn’t a “disqualified person” like your realtor, attorney, or CPA.
- The QI signs an exchange agreement with the investor and then holds the sale proceeds, preventing the investor from taking direct receipt of the funds.
- The QI’s responsibilities include transferring the relinquished property to the buyer, holding funds, and acquiring and transferring the replacement property.
- A Qualified Intermediary doesn’t need to be licensed, but by IRS rule cannot hold a financial interest in the outcome of the exchange.
- Using a Qualified Intermediary is a legal requirement for a 1031 exchange, not an optional convenience.
What Is a Qualified Intermediary?
A qualified intermediary is an independent party. They’re not you, and they’re not anyone too close to you (what the IRS calls a “disqualified person”). You and the QI sign an “exchange agreement,” and from there the QI does the heavy lifting. It takes your relinquished property, hands it to the buyer, acquires your replacement property, and then transfers that property back to you.
QIs Must Be Independent
A QI doesn’t have to be licensed. What they can’t do is hold a financial stake in how your exchange turns out. Beyond staying independent, a good QI handles several key jobs:
- Draws up and signs the agreement that limits your access to the funds or property the QI is holding.
- Takes your relinquished property and transfers it to the buyer.
- Holds the sale proceeds and uses them to buy your replacement property.
- Receives the replacement properties you identify.
- Helps close the purchase of your replacement property.
Thinking about a 1031 or “like-kind” exchange? Then it’s worth having a Qualified Intermediary in your corner to protect the transaction. At WealthBuilder 1031, we give you the guidance and support to get your exchange done right, and we work with clients all over the country. To get started, call our office 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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