What Does a Qualified Intermediary Do?

Qualified intermediaries are engaged to facilitate and carry out a 1031 exchange and, in conjunction with the exchangor’s legal and tax advisors, works to ensure that the transaction is completed within IRS guidelines. In a typical 1031 exchange, a qualified intermediary prepares documentation relating to the exchange, receives and holds the exchange funds generated from the disposition of the exchangor’s relinquished property on behalf of the exchangor, acquires the replacement property from the seller using the exchange funds and has the replacement property deeded directly to the exchangor. However, qualified intermediaries are prohibited from counseling an exchangor on the effectiveness, desirability or tax implications of a proposed exchange

There are certain restrictions on who may serve as qualified intermediary. IRC Section 1031 provides that parents, children, or siblings of the exchangor may not act as a qualified intermediary and it prohibits an “agent” of the exchangor from serving as a qualified intermediary. Common examples of agents include attorneys, brokers, CPAs or real estate agents. There is an exception if an agent hasn't acted as such within the last two years.