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The Qualified Intermediary Role
Why a Qualified Intermediary is required, what the role covers, and how the relationship is structured.
What This Includes
A Qualified Intermediary, often shortened to QI, is required for nearly every deferred 1031 exchange. Its role is created by Treasury Regulation 1.1031(k)-1(g)(4), which provides a safe harbor allowing an investor to avoid actual or constructive receipt of exchange proceeds by using an independent party to hold the funds and complete key steps of the transaction. Without a Qualified Intermediary, the investor would generally receive sale proceeds directly at closing, which is treated as actual receipt of cash and disqualifies the exchange.
The Qualified Intermediary enters into a written exchange agreement with the investor before the relinquished property closes. At that closing, the relinquished property is transferred to the buyer, and the sale proceeds are transferred to the Qualified Intermediary rather than to the investor. The Qualified Intermediary holds those funds in a segregated account through the identification and exchange periods, then uses them to acquire the replacement property directly on the investor's behalf, transferring title to the investor at the replacement property closing.
Not everyone can serve as a Qualified Intermediary for a given exchange. Treasury regulations disqualify anyone who has acted as the investor's employee, attorney, accountant, investment banker, broker, or real estate agent within the two years before the exchange, along with certain family members and related entities. This is why Albuquerque, NM investors generally use an independent, third party exchange company rather than their own transaction attorney or accountant to hold exchange funds.
Because the Qualified Intermediary controls the exchange proceeds for the entire exchange period, investors should confirm that the intermediary carries a fidelity bond and errors and omissions insurance, and maintains proceeds in a segregated, qualified escrow or trust account rather than commingled with the intermediary's operating funds. We help Albuquerque, NM investors select and coordinate with a Qualified Intermediary, prepare the exchange agreement, and manage the flow of documents and funds through both the identification and exchange periods.
What We Deliver
- Selection of an independent Qualified Intermediary that meets Treasury regulation requirements
- Review of the Qualified Intermediary's bonding and insurance coverage
- Preparation and review of the exchange agreement
- Coordination of the transfer of sale proceeds at the relinquished property closing
- Coordination of fund disbursement at the replacement property closing
- Confirmation that exchange funds are held in a segregated, qualified account
- Document coordination between the Qualified Intermediary, escrow, and title company
- Scheduling support to keep the Qualified Intermediary aligned with exchange deadlines
Common Situations
FAQs about The Qualified Intermediary Role
Why is a Qualified Intermediary required at all?
The Qualified Intermediary safe harbor under Treasury Regulation 1.1031(k)-1(g)(4) allows an investor to avoid actual or constructive receipt of sale proceeds, which is required to defer gain under Section 1031. Without a Qualified Intermediary, proceeds paid directly to the investor at closing generally disqualify the exchange. We help Albuquerque, NM investors set this up correctly before the relinquished property closes.
Can my attorney or accountant serve as my Qualified Intermediary?
Generally no, if that attorney or accountant has represented the investor in a professional capacity within the two years before the exchange. Treasury regulations disqualify these parties along with certain relatives and related entities. We help Albuquerque, NM investors identify an independent Qualified Intermediary that meets the requirements.
What does the Qualified Intermediary actually do during the exchange?
The Qualified Intermediary enters into the exchange agreement, receives and holds the sale proceeds from the relinquished property, coordinates the identification of replacement property, and disburses funds to acquire the replacement property on the investor's behalf. We help Albuquerque, NM investors coordinate each of these steps with the intermediary on schedule.
How do I know if a Qualified Intermediary is trustworthy with my funds?
Investors should confirm the Qualified Intermediary maintains a fidelity bond, carries errors and omissions insurance, and holds exchange funds in a segregated, qualified escrow or trust account rather than commingled funds. We help Albuquerque, NM investors evaluate these safeguards before funds are transferred.
Does the Qualified Intermediary give tax advice?
No. A Qualified Intermediary facilitates the mechanics of the exchange and generally does not provide tax or legal advice. Investors should work with a separate tax advisor to confirm the exchange fits their overall tax situation. We help Albuquerque, NM investors coordinate between the Qualified Intermediary and their tax advisor.
What happens if I never engage a Qualified Intermediary before closing?
If the relinquished property closes and proceeds go directly to the investor without a Qualified Intermediary in place beforehand, the exchange generally cannot be completed after the fact, because the investor is treated as having received the funds. We help Albuquerque, NM investors engage a Qualified Intermediary well before the relinquished property closing.
Compliance and Limits
Educational content only. Not tax, legal, or investment advice. The Qualified Intermediary safe harbor is established under Treasury Regulation 1.1031(k)-1(g)(4). New Mexico imposes a graduated state income tax on capital gains that are not deferred through a properly structured exchange. Consult with a Qualified Intermediary and a qualified tax advisor before making exchange decisions.
Next Step
Discuss The Qualified Intermediary Role
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