The Role of a Qualified Intermediary: What It Is and Why You Need One

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If you have an opportunity to participate in a 1031 Exchange, you need to seek out a qualified intermediary (QI) immediately. A QI’s role is an important one. They oversee that all funds you intend on deferring on your taxes are handled accordingly and that all other 1031 rules and IRS regulations are followed, or else you will wind up paying Uncle Sam his fair share of taxes. A QI must be a disinterested third party and be in no personal or professional relationship (e.g., attorney, accountant, employee, real estate agent, etc.) with the seller within a two-year period other than the function of their role as a QI.

What You Should Look for In A Qualified Intermediary

Where you are only required to have a qualified intermediary when an exchange is between three or more people, it is recommended that you always use one. The process is highly involved, including holding your money in escrow, funding your replacement property for the sake of the exchange, and managing the additional complexities involved in the process. It is best to search for a QI experienced with the intricacies of a 1031 exchange and who has a track record of verifiable experience.

Four Questions You Should Ask a Potential QI Candidate

1.     What type of insurance does your QI carry?

Qualified Intermediaries should carry insurance and bonds to protect your money throughout the exchange process, such as omissions insurance and/or fidelity bonds. You also want to know if they are FDIC-insured.

2.     How many exchanges have you done for how much money, and are you currently in the middle of any?

This is self-explanatory but shouldn’t be overlooked. When it comes to someone handling your money, you want to know how much experience they have and their ability to prioritize what you need.

3.     How do they protect you against fraud?

What is their process for wiring funds? Do they have extensive cybersecurity protection in place to keep all of your sensitive information secure?

4.     What type of account do you hold your client’s funds in?

You want to know whether your money will be put into a Qualified Trust Account or Qualified Escrow Account and to be sure that it won’t be comingled with anyone else’s accounts.

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Leave It to The Professionals

There are many steps and procedures when it comes to completing a 1031 exchange. Therefore, it is best to hire an experienced, qualified intermediary. Aside from their primary function of holding the money from the sale of the property while the exchange is taking place, they perform other necessary tasks such as:

  • Prepare legal documents that cover the property exchanges
  • Ensure you don’t go past the 45-day and 180-day deadlines
  • Manage the closing, obtaining, and relinquishing of both properties
  • Review all closing documents
  • Coordinate with you, your attorney, and your accountant
  • Transfer the funds upon the completion of the purchase
  • Verify that every aspect of the exchange follows the IRS’s guidelines

Comfort in Knowing Your Interests Are in Good Hands

With so much invested in the proper handling of a 1031 exchange, you need to know that every detail is covered. Timing is crucial to the exchange process, and mistakes along the way could cost you the deal. With a qualified intermediary, you get an experienced professional who will take the lead on every step of the process and ensure the exchange is successful.

If you’re considering a 1031 exchange and need assistance, RVPII Consulting is the right partner for you. We have a list of vetted companies that our clients have used in the past for 1031 exchanges, and we will be happy to refer you to a reputable, qualified intermediary. Our team deeply understands the complexities of real estate investing and can easily guide you through the entire process.

Contact us today!

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1031 Exchange Rules to Follow for A Successful Transaction