Since 1991, IRC § 1031 has required the use of an impartial third party to hold the proceeds from the Relinquished Property sale until the close on the Replacement Property. This third party is known as a Qualified Intermediary (QI).

The foundation of all successful 1031 exchanges is laid by the Qualified Intermediary. Due diligence in selecting your QI is essential — your entire tax deferral depends on it.

What Does a Qualified Intermediary Do?

Not only does the Qualified Intermediary hold the funds during the exchange period, but they also:

QI Core Responsibilities

  • Help structure the exchange from the very beginning — before the sale of the relinquished property closes.
  • Prepare all exchange documentation, including the exchange agreement, assignment documents, and identification letters.
  • Continuously monitor and guide the taxpayer to ensure compliance with Section 1031 at both the state and federal level.
  • Hold and safeguard the exchange funds in a secure, segregated account throughout the exchange period.
  • Coordinate with closing agents on both the relinquished and replacement property closings.

State-Level QI Requirements

While there are no federal regulations governing qualified intermediaries, with the help of the Federation of Exchange Accommodators (FEA), many states started state-level requirements to uphold high professional standards. The requirements can vary state to state, but typically include some or all of the following:

  • Minimum bond and insurance requirements
  • Registration and licensing requirements
  • Investment limitations on exchange funds
  • Qualified escrow and/or trust accounts for exchanger funds
  • Fund withdrawal authorization requirements

Choosing the Right Qualified Intermediary

The foundation of all successful 1031 exchanges is laid by the Qualified Intermediary. Do your due diligence in researching qualified intermediaries to ensure you are not only getting the best service possible, but to ensure your deferred capital gains tax will hold up above IRS review.

At 1031 Ivy Exchange, our legal team works directly with qualified intermediaries and can help guide you through the selection process. Contact us to discuss your exchange and get started on the right foot.