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:

  1. Prepares documents the IRS requires for the sale of the relinquished property and for the purchase of the replacement property
  2. 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
  3. 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