If you’re doing a 1031 exchange, one of the first people you’ll probably work with is a Qualified Intermediary (QI). But what does a QI do, and why do we need one? A Qualified Intermediary is a third party that assists you with your 1031 exchange. They hold the proceeds of the sale of your original property and facilitate the exchange under the applicable IRS rules.
What Does a QI Do?
A QI typically helps with several important parts of the exchange, including:
Preparing the necessary exchange documents, holding the sale proceeds during the exchange, coordinating with the parties involved in the transaction, helping track the 45-day identification and 180-day exchange deadlines, and transferring the funds toward the purchase of the replacement property.
One important point: you generally cannot receive the sale proceeds yourself if you want the transaction to qualify for 1031 treatment. This is one of the reasons a QI is so important.
When Should You Contact a QI?
Ideally, you should contact a Qualified Intermediary before your property sale closes. If you receive the proceeds and then run into problems setting up the exchange, you may not qualify for the tax deferral. A good QI can help you understand the process, keep the paperwork in order, and make sure you don’t miss important deadlines. If you’re thinking about doing a 1031 exchange, having the right people involved early can make the process very easy.
This article is for general educational purposes only and is not tax or legal advice. Consult a qualified intermediary, tax advisor, or legal professional about your specific situation.