A Qualified Intermediary (QI) plays a very crucial role in the successful completion of a 1031 Exchange. The Qualified Intermediary begins with a written agreement with the taxpayer where they are responsible for assigning the relinquished property to the buyer and assigns the replacement property to the taxpayer following the 1031 Exchange agreement. They handle the gains from the sale of the relinquished property in an escrow account to secure that the Taxpayer never gets an actual or constructive receipt of the sale proceeds.
When selecting a Qualified Intermediary, it is essential to examine the fact that there is little or no control governing these entities. Hence, administering due diligence is vital to guarantee that the exchange funds are being kept securely and the Exchanger’s (entity/individual deferring taxes via 1031 Exchange) reserves are preserved in the event the Qualified Intermediary can’t render the funds at closing. Also, it’s critical to make sure the QI being used has a robust infrastructure and is highly qualified. Qualified Intermediary should also have a vast experience in handling 1031 Exchanges for investors in the past.
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