Role of a Qualified Intermediary in 1031 Exchange
To explain in simple terms, under Section 1031 of the Internal Revenue Code, an investor can sell
investment real estate and acquire a replacement real estate within a span of 180 days. If all the
guidelines are followed, then the tax from the gain on the sale is deferred. An exchange economy,
also called the qualified intermediary or a facilitator, is needed that acts as a middleman for
investors helping with the 1031 exchange.
In order to attain a 1031 exchange, an investor or a tax planning agency needs to enter the exchange
agreement with the intermediary. Furthermore the intermediary also needs to hold the proceeds
from the sale of the property until they are used to buy the replacement property. In case the
investor holds the funds, the transaction can be treated as a taxable sale rather than a “tax-deferred
Importance of a Qualified Intermediary in 1031
The law advises that an individual should not touch money between the sale of an old property and
the purchase of a new one. In order to attain this, it is essential for the individual to use an
uninterested third party known as the Qualified Intermediary (QI).
The QI plays a crucial role in 1031 exchanges. Any hassle that might come along the way, whether
with the closing or identification of documents, can hinder the exchange. Therefore, it is essential to
be sure that you are involved with a professional expert here. It is essential to note that no
government body regulates qualified intermediaries. Hence, it is essential that the QI is bonded.
Furthermore, the fact that the QI is bonded does not ensure that the exchange will not face
challenges, but highlights that the QI has committed to the time and resources for the required work.
Today leading tax planning agencies has partnered with other companies such as the Global Value
Add, in order to accommodate the Internal Revenue Code Section 1031 tax deferred exchanges for
the taxpayers that are subjected to the US federal capital gain taxes in India. The factor that makes
this strategy distinguished from other QI firms, is that the exchange proceeds in case of India, takes
place in Indian Rupees in an Indian Bank averting the risk of loss and expense relation to exchange
rates in US dollars. The exchange funds too are in separate, non-commingled accounts with
Nationalized and/or private banks in India. Furthermore, a high end secures funds management is
implemented that requires the dual signature to disburse the funds.
Read More About: individual tax return, Tax Planning, IRS Amnesty, FBAR