Assessing Qualified Intermediaries in 1031 Exchanges

Posted on April 26, 2018

Under Section 1031 of the U.S. tax code, owners of investment property may defer taxes on the gain from a property sale when they reinvest sales proceeds into a similar property of equal or greater value. When these like-kind exchanges are not conducted simultaneously, taxpayers must rely on qualified intermediaries (QIs) to structure and facilitate the transactions within the allotted window of time.

In essence, the QI acts as the seller of a relinquished property and the buyer of a replacement property who holds and manages sales proceeds on behalf of the taxpayer. Without this third party intermediary, taxpayers who receive proceeds from a property sale would be responsible for paying taxes on those gains. Therefore, identifying and retaining a QI is a vital part of facilitating a tax-compliant and valid 1031 exchange real estate transaction.

A QI cannot be anyone who is related to or had a financial relationship with the taxpayer within the two years prior to the close of escrow on a relevant transaction. This means investors typically cannot hire as a QI a current attorney, accountant, investment banker, broker or real estate agent.

With no required licensing to operate this type of business, a qualified facilitator should be bonded and insured, as well as knowledgeable about 1031 exchanges. Given the crucial rule the accommodator plays and the lack of required licensing to become one, investors must perform due diligence on a company before selecting one. Investors should get referrals from trusted partners and conduct interviews to affirm their QI of choice understands potential risks and opportunities, and how to navigate them. The Federation of Exchange Accommodators, a national industry trade association for QIs and affiliates, can also be a good source of education and information.

The team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email


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