What is a Qualified Intermediary?
A Qualified Intermediary is an independent third party that accommodates an IRC §1031 exchange by agreeing to receive the proceeds from the sale of a relinquished property and use the proceeds to acquire replacement property to be delivered to the taxpayer.
Our team of skilled IRC §1031 attorneys and professionals know how to successfully navigate the rules to allow you to complete a IRC §1031 exchange. Unlike other qualified intermediaries, our firm is led by highly experienced tax attorneys that know how to complete complex structuring, especially relating to properties owned by multiple parties through partnerships, LLCs and trusts.
Why Selecting the Right Qualified Intermediary is Important
A Qualified Intermediary (QI) provides a crucial role in a 1031 exchange, which is a tax-deferred exchange of like-kind properties under Section 1031 of the Internal Revenue Code. The QI facilitates the exchange process and helps ensure that the transaction complies with the IRS regulations.
​
Steps Coordinated by the 1031 Exchange Qualified Intermediary:​
​
-
Engagement: The property owner (exchanger) engages the services of a Qualified Intermediary before selling their relinquished property. The exchanger enters into an Exchange Agreement with the Qualified Intermediary setting forth the terms on which the Qualified Intermediary will receive proceeds from the sale of a reqlinquished property and use those funds to acquire the exchanger's selected replacement property or replacement properties.
-
Sale of Relinquished Property: The relinquished property is sold, and the proceeds from the sale are transferred to the Qualified Intermediary, not to the exchanger. This is a crucial step to maintain the tax-deferred status of the exchange, as receipt of proceeds by the Exchanger will result in immediate taxation of taxable gains and the inablity to complete a 1031 exchange.
-
Identification Period: Within 45 days of selling the relinquished property, the exchanger must identify potential replacement properties that they intend to acquire. The Qualified Intermediary helps the exchanger complete the 45 day identification form using one of three acceptable statutory identification methods: 1) the 3 property rule, 2) the 200% rule, or 3) the 95% rule.
-
Purchase of Replacement Property: Within 180 days from the sale of the relinquished property, the exchanger must acquire one or more replacement properties using the funds held by the Qualified Intermediary.
-
Facilitating the Exchange: The Qualified Intermediary plays a crucial role in facilitating the exchange. They typically hold the proceeds from the sale of the relinquished property in a secure escrow account and use these funds to acquire the replacement property as directed by the exchanger.
-
Avoiding Actual or Constructive Receipt: One of the key reasons for involving a Qualified Intermediary is to prevent the exchanger from having actual or constructive receipt of the sale proceeds. If the exchanger were to take control of the funds, it could trigger capital gains taxes.
​
The use of a Qualified Intermediary helps ensure that the 1031 exchange meets the requirements set by the IRS for deferring capital gains taxes. Qualified Intermediaries must adhere to specific regulations, and their involvement is critical in maintaining the integrity of the tax-deferred exchange process.
​
It's important for individuals engaging in a 1031 exchange to choose a reputable and experienced Qualified Intermediary to facilitate the transaction. Marin 1031 is a qualified intermediary which is run by licensed tax attorneys and former accoutants who are highly experienced in assisting clients with 1031 exchanges.