How Qualified Intermediary Services facilitate 1031 Exchanges?
Despite the fact 1031 exchange takes place between two
parties, in any case, a Qualified Intermediary is equally important. A Qualified
Intermediary is a real estate firm that helps investors in finishing your 1031
exchanges. In a 1031 exchange agreement, a QI is named as the principal, that
means that they buy and sell properties on behalf of the investors. Therefore,
it is necessary to involve a Qualified Intermediary in 1031 exchanges.
It is also important to watch that at what time during a 1031 exchange
a QI is involved. It’s recommended that an investor involve a Qualified
Intermediary at the beginning of a 1031 exchange. In fact, an investor is
required to enter a 1031 exchange agreement along with a Qualified
Intermediary. So, what actually a Qualified Intermediary does?
Qualified
Intermediary Services:
Here is the detailed explanation of
the services performed by the Qualified Intermediary during the 1031 exchange
process:
·
When a 1031 exchange agreement takes place between the
QI and a taxpayer, at this time a special document is signed by the QI in which
he is named as the 'seller' of the relinquished property.
·
The proceeds of the relinquished property are hold by
the Qualified Intermediary, not by the investor. An exchange immediately
disqualifies if the proceeds of the relinquished property are touched by the
taxpayer or invests it anywhere.
·
The proceeds of the relinquished property are then
reinvested in the replacement property by the QI. On the closing day of the
deal, a special document is signed in which the QI is named as the 'buyer' of
the replacement property.
·
After the completion of the exchange, the title of the
property is transferred to the taxpayer without any constructive receipt of the
cash obtained from the sale of the relinquished property and the money spent on
the replacement property by the Qualified
Intermediary.
It is evident from the obligations of a QI that in spite of
the fact title to the property belongs to the taxpayer, and it’s a QI behind
all the diligent work. What bothers taxpayers is the way to get hold of a good QI.
After all, there are such a large number of them. It is a difficult task frankly
but can be tackled by focusing on a few things.
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