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1031 Tax Free Exchange Series, Part II

Qualified Intermediaries (QI) are essential to accomplishing a 1031 exchange appropriately. Without a QI in the exchange transaction makes the transaction subject to review by the IRS and invalidated by the court system. QI’s are not to be your real estate agent, attorney, broker, CPA or any other professional association over the past two years prior to the transaction.

QI’s come in all shapes and sizes and should be scrutinized before use as they could be harmful to your financial and tax health. I heard of a QI that used the money held in escrow to day trade stocks with. What a scary scenario that is! Security of your escrowed money is of utmost importance in the selection process of a QI. Also, ask to review in advance the documents a QI uses to give yourself time to read the mice type. Ask for references and seek confirmation of experience of the QI’s you interview. You should always ask for a written fee schedule to make sure there aren’t any hidden fees or expenses that the QI has not disclosed.

To qualify for the safe harbor tax deferral, the proceeds from the sale of your property must be held by a QI. Make sure you do your due diligence to protect your money, receive the service at a reasonable cost and get the service you deserve. This is an important transaction and a messed up transaction can be devastating to your checkbook at tax time!

Next up: key things to watch for and do for a successful exchange!

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