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Do I really need a qualified intermediary for a 1031 Exchange?

asked 2011-12-28 22:12:23 -0500

CrystalA gravatar image

Is there a way to get around using a qualified intermediary for a 1031 exchange? I am uncomfortable handing over my sales proceeds to an intermediary.

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answered 2012-01-09 15:08:51 -0500

updated 2012-01-09 15:33:45 -0500

Under Section 1031, if you are selling an investment property to one individual and buying from another then yes, you need a QI. If you are doing a two party direct swap, then no. The issue at hand is "receipt of funds" Treasury Regulation §1.1031(k)-1(g)(6)(i)-(iii). The regulations under Section 1031 require that the exchanger can never have control or receipt of the exchange funds in order to get tax deferred treatment. In a scenario where you are selling to one individual and buying from another, you would be required to use Qualified Intermediary.

As for who CANNOT be the Qualified Intermediary, anyone who is the agent of the exchanger or who has performed services for the exchanger in the last two years. This includes the taxpayer's employees, attorney, accountant, investment banker or broker or real estate agent or broker. If you are looking for a good QI ask your Escrow officer or go to the FEA website

As far as getting comfortable with handing over your proceeds to a QI, I would suggest asking about their security of funds. Most should have at least a large Fidelity Bond (50 Million +) as well as E&O Insurance.

Hope this was helpful. Dave Tornell

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Thanks Dave. This is good info.

CrystalA ( 2012-01-09 15:52:40 -0500 )edit

answered 2011-12-28 23:10:45 -0500

Paul Bielec gravatar image

The IRS requires that you use an accommodator, however you do not need to use a qualified intermediary company if you are uncomfortable with handing over your sales proceeds. You are allowed to use your CPA or attorney. I would check with them and see if they are familiar with the process. Be aware that the IRS specifically prohibits the investor, agent of the investor or an otherwise disqualified person under Section 267(b) and 707(b) of the Internal Revenue Code to act as a qualified intermediary.

Good luck!

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Thank Paul

CrystalA ( 2012-01-09 15:52:49 -0500 )edit

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Asked: 2011-12-28 22:12:23 -0500

Seen: 367 times

Last updated: Jan 09 '12