In any discussion about a 1031 exchange, the term qualified intermediary is bound to come up at least once. But many people don’t understand exactly what a qualified intermediary does or why they are so essential to the exchange process. Give our Rochester qualified intermediaries a call to learn about the benefits of section 1031 and how it can help you defer taxes and save money – 877.373.1031.
Definition of a Qualified Intermediary (QI)
A qualified intermediary (sometimes abbreviated QI) is an integral player in any 1031 exchange. The QI acts as a sort of go-between for the taxpayer doing the exchange. When the taxpayer sells their old relinquished property, they can’t just put the net proceeds into their own bank account. The IRS would recognize that as a gain, and the taxpayer would owe a lot of capital gains taxes. Instead, the sales proceeds are given to the qualified intermediary to hold (typically in an escrow account) during the exchange period. Then, once you’re ready to purchase your new replacement property, the QI transfers the money over to the buyer at closing. This works to insulate the taxpayer from recognizing any taxable gains on the relinquished property sale.
Rules & Restrictions
There are several rules and restrictions regarding who can and cannot act as your qualified intermediary. You can’t just hire your uncle to be your QI. In general, anyone who is related to the taxpayer doing the exchange cannot be the intermediary for the transaction. Additionally, any person who has been an agent of the taxpayer over the previous two years is similarly barred. This can include the taxpayer’s:
- Accountant
- CPA
- Attorney
- Real Estate Agent
What most people do to ensure a successful 1031 transaction is hire a person or company that specializes in facilitating exchanges. Just make sure you do your due diligence and find a QI who has a lot of experience and is well regarded in the industry.
Rochester Qualified Intermediaries
Our qualified intermediaries have worked with clients in the Rochester area for decades. We’ve got the experience and proven track record to make sure your exchange goes off without a hitch. Drop us a line today to talk about exchanging a property in Rochester, MN – 877.373.1031