Practical 1031: How Does One Hire a Qualified Intermediary for an Internal Revenue Code Section 1031 Exchange?
As mentioned in our prior Q&As, a qualified intermediary (“QI”) is usually engaged for a taxpayer who wants to do an exchange within the Code Section 1031 regulatory safe-harbor rules. Very few exchanges are performed outside of the safe-harbor rules, although they can be.
The QI plays the central role in an exchange and is sometimes referred to as an exchange agent or exchange facilitator. The primary role of the QI is to take possession of the proceeds of sale of property (directly from the closing escrow) on behalf of a seller and hold those proceeds until they are used to purchase new replacement property. As discussed in Q&A No. 2, the QI takes assignment of the taxpayer’s rights under the sale contract and its rights under the replacement property purchase contract.
Many QIs are affiliated with title companies, some with banks and others are independent exchange businesses that a lawyer can recommend.
The exchange process with most QIs is seamless and affordable. The QI will collect some basic information from you or your attorney and prepare a suite of documents to be signed by the exchanging taxpayer and the other parties to the sale and purchase contracts. Logistically, this is best done at least a week or so before closing, but the process with most QIs can even be set up on the day of closing if you are willing to put everyone into panic mode. Most exchange intermediary fees are under $1,000.
For additional information:
Practical 1031: What is an Internal Revenue Code Section 1031 Like-Kind Exchange?