Glossary term
Qualified Intermediary (QI)
A qualified intermediary is a third party that helps structure certain tax-deferred exchanges, commonly 1031 like-kind exchanges.
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What Is a Qualified Intermediary?
A qualified intermediary, or QI, is a third party that helps structure certain tax-deferred exchanges. In real estate investing, the term most often refers to the intermediary used in a deferred 1031 like-kind exchange.
The QI's role is important because the taxpayer generally cannot take actual or constructive receipt of sale proceeds and still expect the exchange to qualify for tax deferral. The intermediary helps hold and transfer funds under the exchange documents.
Key Takeaways
- A qualified intermediary is commonly used in deferred 1031 exchanges.
- The QI helps keep sale proceeds out of the taxpayer's control during the exchange.
- The intermediary is not the same as a tax adviser, real estate agent, or escrow officer.
- Using a QI does not automatically make an exchange valid; the property, timing, and documentation rules still matter.
What a QI Usually Does
QI Role | Practical Purpose |
|---|---|
Exchange agreement | Documents the intermediary's role in the transaction. |
Sale proceeds | Receives and holds proceeds from the relinquished property sale. |
Replacement purchase | Transfers funds toward qualifying replacement property. |
Timing support | Helps coordinate identification and closing deadlines. |
Recordkeeping | Maintains transaction records for exchange documentation. |
Why Independence Matters
A QI must be a separate party under the exchange rules. The taxpayer's agent, attorney, accountant, broker, or certain related parties may be disqualified depending on the facts and prior relationship.
The intermediary also holds money that can be substantial. Investors should evaluate the QI's controls, bonding, insurance, banking arrangements, and reputation because a failed intermediary can create tax and financial damage.
1031 Exchange Context
A 1031 exchange can defer recognition of gain when real property held for investment or business use is exchanged for like-kind real property. A QI can help with a delayed exchange where the old property is sold before the replacement property is acquired.
The QI does not make bad property eligible, extend statutory deadlines, or remove the need for tax advice. It is one piece of a tightly timed transaction.
The Bottom Line
A qualified intermediary is central to many deferred 1031 exchanges because it helps keep sale proceeds out of the taxpayer's possession. The QI supports the exchange structure, but eligibility, timing, documentation, and adviser review still matter.