The Qualified Intermediary (the Independent Party Role)
The Qualified Intermediary's role is crucial to completing a successful IRC §1031 tax deferred exchange. A professional Qualified Intermediary, performs several vital functions in an exchange. |
| |
| 1. |
The Exchange of Properties: The IRS stipulates that a reciprocal trade or actual exchange must take place in each exchange transaction. This means the Exchanger must assign to the Qualified Intermediary (1) their interest as seller of the Relinquished Property and (2) their interest as buyer of the Replacement Property. Because the Qualified Intermediary becomes an actual principal in the transaction, a reciprocal trade is created. |
| |
|
| 2. |
Holds the Exchange Proceeds: If the Exchanger actually or constructively receives any of the proceeds from the sale of their Relinquished Property, those proceeds will be taxable as boot. The Qualified Intermediary will hold the proceeds from the sale in a separate exchange account until the funds are used to purchase the Exchanger's Replacement Property. All exchange proceeds held by the Qualified Intermediary are put into separate interest bearing accounts for each client at an FDIC insured institution. |
| |
|
| 3. |
Legal Documentation Preparation: Several legal documents are necessary in order to properly complete an exchange. The Qualified Intermediary will prepare an Exchange Agreement, Assignment Agreements and Exchange Closing Instructions for each settlement officer handling the transaction. We work closely with all parties involved to ensure a smooth transaction. |
| |
|
| The IRS rules are complicated and filled with potential pitfalls. A Qualified Intermediary must have a source of education to keep up to date on the continually changing IRS revenue procedures. Due to our substantial exchange experience and our unyielding commitment to our clients, we are able to create a connection between the Exchanger and the sometimes overwhelming IRS regulations.
Questions to ask when hiring a Qualified Intermediary |
| |
| |
Are they bonded and Insured?
Are they members of the Federation of Exchange Accommodators?
Do they have Certified Exchange Specialist on staff?
Are they current on their continuing education credits?
How are the exchange funds handled and/or invested?
Who earns interest on the exchange funds? |
| |
| |
