Getting to Know Your Qualified Intermediary and What It Can Do for You
A 1031 exchange is one of the smartest procedures of the IRS when it comes to exchanging like-kind business or commercial property. This tax-deferring exchange promotes investments in bigger properties to maintain the constant flow of funds for both parties and can only be facilitated by a qualified intermediary.
Experts from 1031ex.com believe that QIs can effectively deal with real estate agents, accountants, and all other professionals that are involved in an exchange. Here’s a closer look at what a QI is and how you can benefit from them.
Qualified Intermediary Explained
Qualified intermediaries (QIs) act as mediators qualified to handle certain activities under section 1031 of the US Internal Revenue Code. Any person who’s related to the taxpayer, or has been in any kind of financial relationship with the taxpayer is not allowed to act as their QI.
Also known as an accommodator, QIs have educational backgrounds in finance, tax, and law. The taxpayer and the QI enter a written agreement wherein the relinquished property is transferred to the buyer, and the replacement property to the taxpayer, all facilitated by the QI.
The QI then holds the sale proceeds in a trust account to make sure that the taxpayer never actually receives the proceeds.
How Can You Benefit from a QI?
Many investors think that they can save more if they don’t hire a QI to facilitate their exchange. But what happens is quite the contrary.
The role of a QI is to make sure that everything in the exchange process is done correctly in complies with the many regulations of everything that’s involved in the exchange. One wrong decision by a taxpayer can cause him thousands of dollars, especially if the value of the property is high.
If you’re planning to reap the benefits of a 1031 exchange, the first thing to do is hire a QI. This way you’ll know that the whole process will go smoothly and you’ll soon be enjoying the benefits of a new investment.