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A little clarity for your next decision.
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Investor WorkspaceA little clarity for your next decision.
By Jerry Baker
A qualified intermediary, or QI, helps carry out a 1031 exchange under a written agreement that limits your access to the exchange money. This guide explains the QI's role, how to select one, and which documents, deadlines, and money controls deserve attention before you sell.
A QI is often called an exchange accommodator. In a typical deferred exchange, the QI helps connect the sale of your old property with the purchase of replacement property. The money moves through the exchange arrangement instead of becoming money you can freely spend.
The federal rules define the QI's role through several requirements. The person must not be you or a disqualified person. A written exchange agreement must provide for the required property transfers. The agreement must also restrict your rights to receive or use the funds. [1]
A properly arranged QI safe harbor helps prevent actual or constructive receipt of exchange proceeds. Constructive receipt means access can matter even if you never withdraw the cash. Putting proceeds in an account you control is not the same as putting them in a properly restricted exchange arrangement.
The QI structure is a common safe harbor, not a statement that every possible exchange must use a QI. This guide focuses on the usual sell-first deferred exchange. Reverse exchanges and construction plans need their own advance review.
I would treat the QI as a central part of the transaction team. I would not treat the word “qualified” as a substitute for checking that firm's people, agreement, and controls.
Bring the QI into the conversation while the sale is being planned. That gives the QI, closing agent, and your advisers time to prepare the exchange papers and fund instructions.
A regular sale followed by a purchase does not become a deferred exchange merely because both transactions occur within 180 days. The Treasury rules distinguish an exchange from receiving sale money and later spending it on another property. [1]
Do not assume you can collect the proceeds, leave them untouched, and appoint a QI later. Once you have received or gained unrestricted access to the money, signing new papers may not repair the problem.
Before closing, I would ask for written answers to three questions: Is the exchange agreement complete? Have the required assignment and notice steps been handled? Does the closing agent have verified instructions that match the agreed arrangement?
If the sale has already closed, tell your tax adviser exactly what happened. Share the settlement statement, account records, and signed agreements. The facts matter more than whether someone wrote “1031” in an email subject line.
The legal steps can be less visible than people expect. Under the QI rules, certain assignments and written notices allow an intermediary to be treated as acquiring and transferring property without taking title in the chain of deeds.
For that treatment, the relevant contract rights must be assigned, and the parties to that agreement must receive written notice on or before the transfer. The full rules determine how those steps apply to each side of the exchange. [1]
That is why I would not judge the arrangement by the deed alone. A seller may deed directly to a buyer while the exchange agreement and assignments do their separate work.
Ask for a closing checklist covering both the property you sell and each replacement you buy. Have counsel explain who signs, which rights are assigned, and how notice will be documented. Keep the final signed papers together rather than trying to reconstruct them later.
The QI coordinates the exchange arrangement. Other people still have important jobs. A clear division of work makes it easier to spot a missing answer before closing.
| Team member | Questions to direct to that person |
|---|---|
| Qualified intermediary | Exchange agreement, fund procedures, assignments, identification process, and release restrictions |
| CPA or tax adviser | Taxpayer identity, basis, gain, debt effects, tax deadlines, and tax reporting |
| Attorney | Contract rights, ownership structure, legal duties, and protection if something goes wrong |
| Title or closing team | Title, settlement figures, recording, and verified closing instructions |
| Investment professional | Investment fit, sponsor review, offering terms, risks, and allocation choices |
These roles can overlap, and actual duties depend on each engagement. Ask who owns each task rather than assuming everyone is watching it.
My work is to help evaluate investment choices around your needs, goals, and exchange requirements. That does not replace your CPA's tax calculation or your lawyer's review. A QI's acceptance of an exchange document also does not prove that an investment is sound.
The QI rules exclude certain people because of their relationship to you. The disqualified-person rules include specified agents who worked for you during the two years ending with the transfer of your old property. They can include an attorney, accountant, employee, investment broker, or real estate broker.
There are exceptions, including certain prior exchange services and routine financial, title, escrow, or trust services. Related-person and ownership rules also matter. It would be wrong to reduce all of this to “every accountant is always barred” or “any separate company is fine.” [1]
Give counsel the proposed QI's exact legal name and any known ownership or business ties. Disclose your recent work with that firm and its affiliates. Do not decide that a relationship is too minor to mention before someone checks it.
For example, using the same exchange company for a prior exchange is not automatically disqualifying. Using an adviser who has recently provided unrelated personal services can raise a different issue. The nature of the work and the legal relationships need review.
I would begin with the actual company that will sign your agreement. A parent brand, referral partner, or website name may not be the contracting party. Ask for the legal entity, office contacts, and the people responsible for your file.
Then walk through a transaction. Who checks the outgoing wire? Who can change an account instruction? How do you receive balance updates? Who covers the file when your main contact is unavailable?
Ask about experience with your planned replacement structure. A straightforward single-property purchase differs from several closings with different sponsors and funding dates. Familiarity is useful, but it should show up in a clear process rather than a vague claim of expertise.
I would also ask about unresolved claims, past fund losses, and how the firm handles complaints. Request supporting records where available. Your attorney can identify which state requirements apply and whether the firm's evidence meets them.
A referral can help you build a shortlist. It should not end the review. Ask whether the person making the referral receives compensation or has an ownership tie. You should understand both the service and the relationship behind the introduction.
Have counsel review the agreement while there is still time to ask for changes. Focus on the rules that control your money and your options if a dispute arises.
Ask for plain answers alongside the legal wording. If a representative promises a separate account, prompt interest payments, or two-person wire approval, find out where that promise is recorded.
Do not solve a confusing clause by skipping it. A short discussion before signing is easier than a disagreement after money has moved. If the answer changes depending on who you ask, pause and have the parties reconcile it.
Ask for the bank name, account title, ownership records, and account structure. Find out whether your funds are held separately or pooled and how the firm tracks each client's interest.
FDIC pass-through coverage depends on requirements such as the actual ownership relationship and proper records. Eligible funds are also considered with other deposits the owner has at that same bank in the same ownership category. A separate exchange does not automatically create a new insurance limit. [2]
There is a second distinction: deposit insurance covers an insured bank's failure within its rules. It does not insure a nonbank intermediary against its own failure, fraud, or misconduct. Money held through a nonbank can also be harder to access if that company has problems. [3]
Have the bank and QI explain the actual arrangement. Then ask your advisers to review that explanation. A bank logo on a proposal is not a complete answer about who owns the account or what happens after a loss.
Bonding, insurance, account controls, and financial strength address different risks. Ask for coverage documents and limits. Do not add their headline amounts together and assume your entire exchange balance is guaranteed.
A base exchange fee is only one part of cost. Ask about extra property fees, wire charges, document changes, cancellation fees, and charges if an exchange is more complex than expected.
Ask who receives account interest and how it is calculated. Is the quoted rate fixed or variable? Does the QI retain any portion? Are there minimum balances, timing rules, or account charges?
Here is a hypothetical comparison, not a rate quote. A $500,000 balance earning a simple 4% annual rate for 90 days produces about $4,932 before fees and tax, using a 365-day year. At 2%, it produces about $2,466. Actual balances, rates, accrual methods, and timing will differ.
The difference can outweigh a small change in the setup fee. Still, I would not choose a firm mainly for a higher rate. The account's terms, permitted investments, and safeguards come first. Cheap administration becomes expensive quickly if the funds are not available when needed.
The usual identification period ends at midnight on day 45 after the old property transfers. The exchange period ends at midnight on the earlier of day 180 or the due date, including extensions, for the relevant federal tax return. The 45 days are part of the 180 days. [1]
For an example, suppose the sale closes November 2, 2026. Day 45 is December 17, 2026. Day 180 is May 1, 2027. A tax-return deadline that comes sooner can shorten that period unless a valid filing extension applies.
The May 1 date is a Saturday. Do not assume that turns the exchange deadline into the following Monday. Build a working deadline around banking, recording, title, and sponsor schedules. Those services may require action well before the legal deadline.
A filing extension and an extension of time to pay tax are different matters. Have your CPA handle both questions. Have your QI confirm the exchange calendar rather than relying on a calculator alone.
I would add reminders for document review, identification planning, funding approval, and final closing checks. A reminder should create time to solve a problem. It should not first appear when the problem can no longer be solved.
Choosing an investment and identifying it for the exchange are separate tasks. The federal rule generally calls for a signed written designation, sent within the identification period to a permitted recipient, with an unambiguous description.
The regulation allows hand delivery, mailing, fax, or another sending method. It does not impose a universal requirement that the QI actually receive every valid identification before midnight. Recipient rules and the precise facts still matter. [1]
For practical purposes, I would send it early and obtain confirmation. That is a way to reduce uncertainty, not a replacement for the rule. Keep the signed document, transmission record, and response.
Have the QI and your advisers check the property description and the applicable identification limit. With multiple choices, do not assume you can list everything and decide later. Changes and revocations have their own written steps and timing rules.
Keep investment availability separate from identification. Listing a property does not reserve it, compel a seller to close, or guarantee that a sponsor will accept you. Build the list with realistic closing options and enough time to review them.
Wire fraud can involve a convincing email from an account or conversation that appears familiar. The FBI describes business email compromise involving real estate transactions and recommends verifying payment changes through a separate, trusted channel. [4]
Before funds move, call a number you already know to be correct. Do not rely on a new phone number supplied in the same message that changes the bank instructions. Confirm the recipient, bank, routing details, and account information through the approved process.
Use multifactor authentication on email and other sensitive accounts. Treat pressure, secrecy, or a last-minute change as a reason to verify, not a reason to hurry.
If a wire may have gone to a fraudster, contact your bank immediately and ask it to contact the receiving bank. Report the matter through the FBI's Internet Crime Complaint Center. Quick action can help, but recovery is not assured. [4]
The restrictions in a QI agreement are part of the tax arrangement. You generally cannot demand access whenever your plans change.
The safe-harbor rules permit certain release provisions. For example, an agreement may allow access after the identification period if no replacement property was identified. If property was identified, different conditions apply, including receipt of all replacement property due under the agreement or a qualifying written contingency. [1]
Do not assume day 46 always unlocks the account. Do not assume the first replacement closing releases money while other required purchases remain. Ask the QI and counsel how your agreement applies before making plans for a leftover balance.
At each closing, compare the settlement figures with the tax adviser's reinvestment plan. The cash at the QI is not always the full replacement value needed for complete deferral. Debt relief and other closing adjustments also need review.
For a simple tracking example, suppose the QI starts with $600,000 and the plan calls for three $200,000 cash allocations. The first closing uses $200,000. That leaves $400,000 before any fees, interest, or other entries. The remaining balance is still part of an active plan; it is not automatically spare cash available to withdraw.
If the second purchase falls through, update the plan with the QI and advisers. Check which properties were validly identified, which can still close, and what the agreement allows. Do not send the unused money to a new choice without checking those limits. This example tracks cash only. It does not calculate your tax result or show that any particular investment qualifies.
I would keep one closing schedule showing each planned purchase, its cash amount, its funding date, and the person responsible for confirming it. Mark an item complete only after the closing team confirms completion. A wire sent, a subscription signed, and a completed acquisition are separate events.
State duties may apply too. California's Franchise Tax Board explains QI withholding obligations when there is taxable cash or an exchange fails, subject to the stated exemptions and rules. Withholding is a separate calculation from the investor's final tax liability. [5]
Save the exchange agreement, assignments, notices, identification documents, settlement statements, fund statements, and final closing confirmations. Include records for every replacement purchase.
Give the CPA a complete package. The IRS explains that an exchange can defer gain without erasing it, and the tax basis of the replacement property matters when that property is later sold. [6]
Reconcile the opening balance, money sent to each closing, fees, interest, and any cash returned. If an entry is unclear, ask for an explanation while the transaction team still has the file open.
A useful final question is: Can someone who did not attend every call understand what happened from these records? If not, fill the gaps now. That is good preparation for the return and for the next property decision.
No. The QI handles an exchange role defined by the agreement and tax rules. That does not make it responsible for deciding whether a property or security fits your goals. Confirm each professional's separate duties in writing.
Recent accounting services can make that person disqualified. The two-year rules also contain exceptions for specified services. Have counsel review the actual relationship rather than assuming every accountant is eligible or every accounting relationship is barred. [1]
Not necessarily. The Treasury rules allow certain assignments and timely written notices to satisfy the QI's acquisition and transfer role without putting the QI in the chain of deeds. The transaction still needs proper documents. [1]
Do not assume that is compatible with the exchange. Actual or constructive receipt can defeat the intended deferral. Arrange the funds and documents before the sale closes, with your QI and tax advisers reviewing the plan.
No. Coverage depends on the bank deposit, ownership category, records, limits, and other requirements. FDIC insurance also does not cover the failure or fraud of a nonbank intermediary itself. Ask for an explanation of your specific account. [2] [3]
The QI cannot simply grant more time because a purchase is delayed. Have your tax adviser verify the legal deadline and whether any specific IRS relief applies. Bank holidays or a seller's delay should not be treated as automatic extensions.
I would review the contracting entity, agreement, fund controls, account structure, insurance terms, staff coverage, and relevant experience. Compare fees and interest too. The goal is a clear, well-supported process for your exchange, with no important duties left to assumption.
Educational information, not an offer or a personal tax, legal, or investment recommendation. Examples are hypothetical and omit stated adjustments. Tax treatment depends on your facts and current law. Review your transaction with your CPA, attorney, and qualified intermediary. Real estate investments can lose value and may be illiquid.
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