Qualified Intermediary (QI)
By law, real estate investors involved in a 1031 exchange cannot receive (or touch) money from a sold property that is used to purchase the replacement property. A Qualified Intermediary is an independent third party that is unrelated to the investors or has had a business relationship during the preceding two years.
A Qualified Intermediary in a 1031 tax-deferred exchange serves three main functions in order to never allow the investor to “touch” the money:
- Prepares documents the IRS requires for the sale of the relinquished property and for the purchase of the replacement property
- Acts as a custodian of the the sales proceeds from the sold property as they are placed in a trust account and transfers those funds to pay for the replacement property when the transaction is completed, never allowing the taxpayer access to the funds
- Pays the taxpayer any interest earned from the funds being held during the escrow period with the taxpayer liable for reporting any interest received as ordinary income