Who is a Qualified Intermediary (QI)?

Qualified Intermediary abbreviated as a “QI” is needed to manage the compulsory monetary mechanics of the 1031 exchange from both the ends (be it a seller or a purchaser). It is the job of QI to hold the funds during the process of 1031 exchange. The funds are either kept in the Qualified Escrow Account of the QI or the Qualified Intermediary Trust account. The fund holding duration begins at the sale of the Relinquished Property and ends at the purchase of the Replacement Property.

What is the role of QI in the 1031 Exchange?

Along with keeping the 1031 exchange funds safe, the role of QI is to coordinate with the seller and buyer during the process of documentation of Relinquished Property to the Replacement Property. The QI informs and makes sure the rules and regulations of 1031 exchange are followed. The method of transfer is managed end-to-end by QI. The QI doesn’t allow the seller to deduce a constructive receipt of the sales funds. Once the deal is closed, the Qualified Intermediary (QI) submits a complete record of exchange called 1099 to the client as well as to the IRS to keep a legal record of the 1031 Exchange.

NOTE- For your safety, please make sure your QI submits the complete record post completion of the deal.

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Who chooses to become a QI and Why?

QI keeps your money in his or her account until the time you are ready to acquire your Replacement Property. From Day 0 to Day 45, the money is kept in Qualified Escrow Account or Qualified Intermediary Trust account of QI on which he or she enjoys interest. The duration increases if your deal is stretched till Day 180. QI enjoys great benefits without making extra efforts.

Who can become a QI?

A QI should have the following qualities:

  • A person can become a QI if he or she has no financial association (for at least the last two years) with the seller or purchaser.
  • A person who is related to the investor in any manner (personally or professionally) cannot become a QI.
  • He or she should be right in character.
  • A QI has to remain under contract with the taxpayer.
What are the responsibilities of QI?

To become a QI, you have to fulfill the list of responsibilities towards the seller or taxpayer mentioned below:

  • Should acquire the Relinquished Properties
  • Should Transfer the Relinquished Property
  • Should hold the funds safely until deal closure
  • Should Transfer the Replacement property
  • Should Acquire the Replacement Property
What is the need of hiring a QI professional?

An experienced QI professional helps you to simplify the complicated process of 1031 exchange and DST. The QI intervention leads to the safety of the funds and meets the 1031 Exchange deadlines. The national government doesn’t regulate the appointment of a QI, so you should find a knowledgeable, trustworthy and proficient QI to ensure quick and easy exchange as per the guidelines of IRS.

NOTE- Hire the best QI via 1031 Exchange.com to defer from paying up to 37.5% Capital Gains Tax.

A QI has to perform many things before beginning the process of the 1031 Exchange, such as the following:

  • To fulfill the rules and regulations of IRS, QI involves the taxpayer’s tax advisor to deliver the updated exchange transaction documents. The exchange transaction documents include- The Notice of Assignment, Assignment Agreement, The Qualified Exchange Account Form, The Security of Funds Instrument and any other instructional document for the closing officer.
  • Assist and Monitor the sale and purchase of the Relinquished Property and Replacement Property simultaneously
  • Keep the exchangers or taxpayers proceeds safely until the deal of Replacement Property is finalized
  • Act as a mentor for the Exchanger during the process of 1031 Exchange
  • Withhold your fund and relinquish it within the stipulated period

Hiring a well experienced and skilled QI is a cumbersome task. Not just holding up your funds, a QI acts an impartial mentor to the exchanger, so to locate the best quintessential QI, follow the three steps mentioned below:

  • Referrals- If you know people who have done 1031 exchange, you can ask them about the QI, or you can seek referrals from their QI. The use of references will be an ideal source since it is tried and tested.
  • In-depth Research-If not referrals, you can switch to the internet to find about best “Qualified Intermediaries” in your area.
  • Opt for Third Party listings as well- Never get blinded to the website content, no one gives negative reviews of themselves. Make use of reviews of QI on other third party websites such as Google and many more.

The QI is bound by the minimum number of rules and regulations. The QI don’t need a license to carry out the exchange. Hence it is vital to make your choice of QI wisely. Go through the set of questions one should ask before hiring a QI.

  • Is fidelity bond (bond between the taxpayer and QI) as per coverage or occurrence?
  • Is there any policy limitation for fidelity bond coverage or not?
  • Where do you hold the funds of the client? Do you put it in Qualified Escrow Account or Qualified Intermediary Trust account?
  • What type of investment will you suggest for my funds of 1031 Exchange?
  • What is the sufficiency score of E&O insurance coverage?
  • Do you have prior experience in the field of 1031 Exchange?
  • Have you worked as a QI before? If yes, can you please tell the number of years?

Are you still confused? No worries, you can contact us and get all your queries solved in a hassle-free manner. Also, you can find a perfect QI for yourself here at 1031 Exchange, a subsidiary of Investment Net LLC.