1031 Exchange: Finding a Qualified Intermediary - Part III of IV

In my last two blogs, we went over the Benefits of a 1031 Exchange - Part I and Different Types of 1031 Exchanges - Part II. In this article, part three of our four part instalment, I would like to cover a little more information about the middleman of the 1031 Exchange.

To do a successful 1031 Exchange, you need to use a Qualified Intermediary (QI), also known as a Facilitator or an Exchange Accommodator. This isn’t an easy, do-it-yourself, sell one investment and buy another investment, expecting to defer capital gains tax-type transaction. You will need the intermediary to help legally facilitate the transaction and to adhere to the IRS tax law guidelines.

When conducting a 1031 exchange, it's important to know that you cannot use a relative or anyone who has had any kind of financial relationship with you within the past two years prior to the close of escrow. This includes attorneys, real estate agents and certified public accountants. 

The QI is responsible for:

• Preparing legal documents for the exchange 
• Receiving, holding and safeguarding funds from the sale of the relinquished property in an escrow account 
• Transferring the relinquished property to buyer 
• Transferring the replacement property to the taxpayer (investor) 
• Completing all 1031 exchange accounting 
• Submitting all IRS paperwork.

Make sure you choose a reputable QI; depending on the state, licensing isn’t required for most Qualified Intermediaries, so make sure the one you choose is bonded and insured to safeguard funds. Check to see how long they have been doing exchanges, how long they’ve been in business and get referrals from past clients if possible. An inexperienced QI can kill a successful 1031 Exchange.    

I hope this gives you some insight on what to expect from the middleman of a 1031 Exchange; they are a very important part of the process. So do your due diligence and find the right facilitator, this will make your exchange a smooth and successful one.

If you have any questions about anything in real estate, please do not hesitate to contact me. I hope my 10-plus years of experience in real estate will be of benefit to you.

Warmest Mahalo,
Kengo Ueno (R)

Kengo Ueno (R)

 
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