Qualified Intermediary plays a very important role for the successful completion of the 1031 Exchange. As without the involvement of QI, the 1031 exchange cannot be completed. The role of Qualified Intermediary in the exchange process is as follows:
- A Qualified Intermediary’s job starts from the first day of a 1031 exchange. The QI is responsible for closing the sale of the relinquished property.
- The QI (Qualified Intermediary) holds the proceeds of the relinquished property. Investors are not allowed to claim the proceeds, as doing so will eliminate the possibility of tax deferment.
- When the sale of the relinquished property is closed, a special document is signed, which recognizes the Qualified Intermediary as the ‘seller’ of the property.
- The next job of the QI is to recognize a potential replacement property for the benefit of the investor within 45 days. This reduces the burden of identifying a replacement property within such less time from the investor’s head.
- After the successful identification of the replacement property, the next job of a Qualified Intermediary is to have it within the next 180 days (begins from the date when the relinquished property is sold).
- On the last day when the exchange is about to complete, the Qualified Intermediary (QI) deposits the funds and receives the replacement property as the purchaser of the real estate.
- Once the 1031 exchange is finished, the QI also known as facilitator transfers the property title to the investor without a constructive receipt of the funds used in the exchange.
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