How to Select a QI

No D.I.Y.

The Treasury Department governs the I.R.C. Section 1031/1033 Exchange. Their rules are hard and fast.  So, keep this quote in mind, “There’s no such thing as a do-it-yourself exchange.”

Our advice is to build a team.  Has your real estate agent spoken to your CPA?  Has your title company escrow agent emailed your qualified intermediary?  Our clients make one call.  They call us.  We give referrals, but they build the team that they want.  If you like that style of business, we will get along fine.  Note that we have several teams in place.  Most of the professionals we work with know each other because, over the years, we’ve introduced them or referred them to our clients.  It’s what we do, professionally.

The professionals we refer seldom need to be explained.  Tax questions to the CPA and real estate questions to the agent.  Pretty simple.  However, we are asked most often about the need of a qualified intermediary.  Be aware that the law requires an exchange to be an “arms-length” transaction.  In fact, you won’t be able to use your parents, child, or sibling, or even your attorney, real estate agent, or CPA as a middle person in the exchange and still expect to defer capital gains taxes.

How to Select a Qualified Intermediary

The IRS requires that you use a professional Qualified Intermediary[1] (QI), also called an Exchange Accommodator or Facilitator if you want to preserve the tax benefits available to you through the completion of a successful 1031/1033 Exchange. You must have a written agreement with a Qualified Intermediary executed before the sale of your existing property.  A Qualified Intermediary is a person or company that is in the full-time business of facilitating tax-deferred exchanges.

A professional QI handles all the funds from the sale of the original property and holds them until they are needed to purchase the exchange property. Then, delivers the money directly to the closing agent, who, in turn, delivers the deed to the real estate investor. In addition, a Qualified Intermediary can:

  • Help you arrange the structure of the exchange.
  • Prepare documents related to both the relinquished and replacement properties
  • Give instructions and documents to the escrow or title company
  • Submit an accounting of the exchange for your records
  • Prepare a 1099 for you and the IRS that details any interest earned.

As you would normally do, before hiring any professional, when looking for a Qualified Intermediary, be sure to ask for references and check those references.  Confirm that the QI has a fidelity bond or fidelity insurance, an indicator of the QI’s ethical past. The right QI will be a safeguard who assures your exchange meets all the complex requirements and rigid deadlines.  The Qualified Intermediary should align his or her goals with yours to complete a successful and secure like-kind 1031/1033 Exchange.

When you call, ask us about the qualified intermediaries we prefer and why we prefer them.  Phone calls are free.