A qualified intermediary has many tasks and responsibilities in a 1031 exchange, but many taxpayers don’t know exactly what a QI does. This article examines the many functions of the qualified intermediary in a 1031 exchange of real estate.
Constructive Receipt Insulation
In any 1031 exchange, the exchangor needs to move all of their net proceeds from the sale of the relinquished property into the new replacement property. If they receive any of those proceeds (“constructive receipt”) the exchange will not be fully tax-deferred and they will be required to pay taxes on those funds. A qualified intermediary acts as an insulator between the exchangor and their exchange funds. The QI holds the exchangor’s net proceeds during the exchange process in a segregated account until such time as they are ready to move the proceeds into the new property. This keeps the funds safe, and also protects the taxpayer from receiving any funds before the exchange is complete.
Simplifying a Complex Process
1031 exchanges are complicated. Qualified intermediaries make the process easy for exchangors by explaining the procedure, answering questions, and facilitating all aspects of the transaction.
There are many documents involved in a 1031 exchange – the necessary closing documents, written exchange agreement, and more. A qualified intermediary can help draft all these documents for you so you are fully prepared for your closing.
Minnesota Qualified Intermediary Services
At Commercial Partners Exchange Company, we offer qualified intermediary services to taxpayers large and small. If you’re considering a 1031 exchange of real property, contact us today to discuss the details surrounding your exchange. Our qualified intermediaries have decades of experience and can answer all of your questions, prepare your 1031 documents, and advise you on the best practices regarding your exchange. 1031 exchanges offer a great method for deferring capital gains taxes. See if your property qualifies today!
- 1031 Hotline: If you have questions about 1031 exchanges and qualified intermediaries, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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