What Is a Qualified Intermediary (QI) in a 1031 Exchange?

A Qualified Intermediary (QI)—also called an Accommodator or Exchange Facilitator—is a neutral third party who facilitates a 1031 exchange by holding the sale proceeds in East Arlington, VT and ensuring the transaction follows IRS regulations. A QI is required to prevent the taxpayer from having direct access to the funds, which would disqualify the exchange

What Does a Qualified Intermediary Do?

A Qualified Intermediary plays a critical role in a 1031 exchange by:

  • Holding the Sale Proceeds – The QI secures the funds from the sale of the relinquished property until they are used to buy the replacement property.
  • Preventing Disqualification – By keeping the taxpayer in East Arlington, VT from receiving the proceeds, the QI ensures the exchange remains IRS-compliant.
  • Preparing Exchange Documents – The QI handles all necessary legal paperwork, including the exchange agreement.
  • Managing Deadlines – The QI ensures the investor in East Arlington, VT meets the strict IRS 1031 exchange timelines:
    • 45-Day Identification Period – The taxpayer in East Arlington, VT must identify replacement properties within 45 days.
    • 180-Day Purchase Period – The replacement property must be purchased within 180 days of the sale.
  • Coordinating Transactions – The QI works with the investor, real estate agents, title companies, and escrow officers to facilitate a smooth exchange.
IRS rules for a Qualified Intermediary in East Arlington, VT

Why Is a Qualified Intermediary Required in East Arlington, VT?

The IRS mandates that a QI hold the proceeds during a 1031 exchange to ensure the taxpayer in East Arlington, VT does not take possession of the funds. If the investor touches the money, even temporarily, the exchange is disqualified, and capital gains taxes must be paid.

Who Can Be a Qualified Intermediary in East Arlington, VT?

A Qualified Intermediary must be an independent third party. The following cannot serve as a QI:

  • The taxpayer (investor)
  • A family member or relative
  • The investor’s real estate agent, attorney, accountant, or financial advisor (if they provided services in the last two years)
  • A business partner or anyone with a financial interest in the transaction
1031 exchange transaction steps in East Arlington, VT

How to Choose the Right Qualified Intermediary in East Arlington, VT

Selecting a trusted QI is crucial for a successful 1031 exchange. Here’s what to look for:

  • Experience & Reputation – Choose a seasoned QI with a strong track record in 1031 exchanges.
  • Security of Funds – Ensure the QI holds funds in segregated accounts and has insurance or bonding to protect against fraud.
  • Transparent Fees – Compare pricing structures, but prioritize security and reliability over cost.
  • Customer Support – Work with a QI who provides clear communication and guides you through the 1031 exchange process.
1031 exchange deadline management in East Arlington, VT

What Happens If You Don’t Use a Qualified Intermediary?

If a Qualified Intermediary is not used, the IRS will consider the exchange invalid, which means:

  • You will owe capital gains taxes on the sale.
  • Depreciation recapture taxes may be due.
  • Net Investment Income Tax (NIIT) may apply, increasing your tax liability.

Example of a Qualified Intermediary in a 1031 Exchange

  1. You sell an investment property for $1,000,000.
  2. The sale proceeds go to the QI, who holds them in a secure account.
  3. Within 45 days, you identify a replacement property.
  4. Within 180 days, the QI transfers the funds to purchase the new property on your behalf.
  5. The exchange is completed, and capital gains taxes are deferred.
1031 exchange process with a QI in East Arlington, VT

Why You Need a Qualified Intermediary in East Arlington, VT

A Qualified Intermediary is essential for a 1031 exchange to be IRS-compliant. They hold the sale proceeds, manage deadlines, and ensure all IRS regulations are followed. Always work with a reputable QI to avoid costly mistakes and maximize tax deferral benefits.

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Investor working with a Qualified Intermediary in East Arlington, VT