Qualified Intermediaries

Written by Linda Alexander
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Qualified Intermediaries serve an important function in a 1031 exchange. They perform all of the paperwork to qualify the transaction as a proper 1031 exchange. You cannot control the proceeds in your sale according to the IRS "safe harbor" provision, so the QI handles the money. Assigning somebody to be a QI, along with an exchange agreement and a notice, assures that that the QI will receive the proceeds and reinvest them in your new property.

How to Choose a Qualified Intermediary

When choosing a QI to perform your transaction, be sure that he or she is bonded for exchange transactions for at least $2.5 million per transaction. You wouldn't want somebody walking away with your money! A competent intermediary should be able to answer any questions you have about the process, and should also have real estate professionals as well as attorneys on staff.

Also ask about fee structures and interest. Most QIs charge a flat fee on the sale of the relinquished property and another one on the purchase of the replacement property. Others charge monthly holding fees. Be sure to ask for clarification so you understand how they charge, and who receives the interest earned by the proceeds.

In many cases, the intermediary gets the interest. Therefore, you should factor that interest into the transaction when you calculate the total cost of the exchange. Without a QI, you cannot perform a 1031 exchange. Make sure you hire someone who is knowledgeable and competent.

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