THE ESSENTIALS OF A 1031 EXCHANGE ROBERT G. HETSLER
The Role of the Qualified Intermediary
The role of the Qualified Intermediary (QI) is essential to completing a successful 1031 exchange. In fact, IRS
rules require that you use one in most circumstances. And while the exchange process itself is relatively
straightforward (once you understand the basic rules), the QI plays an indispensable part in almost every
exchange.
The QI Holds Exchange Funds
Since the investor cannot have actual or constructive
receipt of sale proceeds from the relinquished property
(or even be allowed to benefit from the exchanged funds
in any way during the transaction), the QI will be the
fiduciary who holds onto the sale proceeds until closing
on the replacement property occurs. Given the large
sums involved in 1031 exchanges, this is a critical role
which makes choosing your QI a very important decision.
The QI Prepares Exchange Documents
Proper documentation is essential to a successful exchange. Investors will require an Exchange Agreement,
Assignments of Purchase and Sale Agreements and other documents relevant to the exchange. The QI should
be the individual preparing these documents and ensuring their validity. Also, since the QI is the entity to whom
the investor provides notice of the potential replacement documents, he or she should also offer the investor
blank Replacement Property Identification Notice forms (or something similar) so that the 45day notice
deadline can be met.
The QI Advises on Rule Compliance
One of the key elements of any successful exchange is ensuring that the investor meets the stringent
timeframes set forth by the IRS. The first is to identify replacement property within 45 days of selling the
relinquished property. The second is to close on the replacement property within 180 days of selling the
relinquished property. The QI plays a vital role in this regard, in that he or she will keep the investor on track
and manage the deadlines to ensure none are missed. As an expert in 1031 exchanges, a good QI will also
offer advice and guidance on the other rules surrounding these transactions.