Qualified Intermediary

A qualified intermediary (QI), sometimes called an accommodator or exchange facilitator, is an independent third party that holds the proceeds from the sale of the relinquished property and uses them to acquire the replacement property on the investor's behalf. Using a QI is effectively mandatory for a standard deferred 1031 exchange because the taxpayer cannot have actual or constructive receipt of the sale proceeds; if the investor touches the money, the exchange fails and the gain becomes immediately taxable. The QI enters into a written exchange agreement before closing, receives the sale funds at the closing of the relinquished property, holds them in a segregated account, and disburses them to purchase the identified replacement property within the 180-day window. The Treasury regulations specifically disqualify certain related parties and agents, such as the taxpayer's own attorney, accountant, or real estate agent who served in that role within the prior two years, from acting as the QI. Because QIs are largely unregulated at the federal level and hold significant client funds, investors should evaluate a QI's bonding, insurance, segregation of accounts, and financial strength before engaging one.