Understanding the Role Of A Qualified Intermediary for 1031 Exchange

The importance of Qualified Intermediaries can't be ignored when it comes to 1031 exchanges. As per the rules framed by the IRS, a 1031 investor must involve a Qualified Intermediary (QI) in every exchange. It could be said that a 1031 exchange is impossible without the participation of a Qualified Intermediary. That's why you must know the role of Qualified Intermediary if you're planning a 1031 exchange.

Who is a Qualified Intermediary?

A Qualified Intermediary, also known as a facilitator, is an individual responsible for handling 1031 exchanges on behalf of investors. From finding a buyer for your relinquished property to acquiring the replacement property, a Qualified Intermediary does everything. The reason why it's mandatory to involve a Qualified Intermediary in 1031 exchanges is that investors often face difficulties in locating replacement properties and the presence of a Qualified Intermediary makes their job much easier.

Who can be a Qualified Intermediary?

There is no such eligibility criteria or requirements to qualify as a Qualified Intermediary. A person doesn't need to get through an exam or pass a test to become a Qualified Intermediary. All they need is the citizenship of the United States and experience in the real estate market. However, there is  a condition. The Qualified Intermediary must not be related to the 1031 investor in any sense. This is the reason why your attorney or lawyer can't be your Qualified Intermediary.     

Role of a Qualified Intermediary -

·         The primary task of a Qualified Intermediary involves doing all due diligence and preparing the required documents.

·         The Qualified Intermediary can also find a buyer for your relinquished property if you approach them before closing on the sale of your relinquished property.

·         Upon closing on the sale of the relinquished property, the Qualified Intermediary deposits the funds into a secured third party account or escrow account.

·         The Qualified Intermediary then starts looking for a potential replacement property and identifies the same within 45 days. Every 1031 investor gets 45 days to identify one or more replacement properties. This time frame of 45 days is known as the Identification Period.

·         Once a replacement property is identified, the Qualified Intermediary transfers the funds to the seller and acquires it.

·         On the closing day, the Qualified Intermediary transfers the property title to the investor without any constructive receipt. Not to mention, they complete the entire process within six months, that is, within 180 days.

How to choose a Qualified Intermediary?

Choosing a Qualified Intermediary for your 1031 exchange can be a tricky job. You may need to do a bit of research before closing on a Qualified Intermediary, as there are many. With more and more investors opting for a 1031 exchange, the demand  for Qualified Intermediary has also increased significantly. You can compare different Qualified Intermediaries based on experience, knowledge, contact, fees, etc. These factors can help you get hold of a good Qualified Intermediary for your 1031 exchange.