All About 1031 Exchange Accommodators (aka Facilitators or Qualified Intermediaries)
**The information on this web page is provided for informational purposes only and should not be considered as legal, tax, financial or investment advice. Since each individual’s situation is unique, a qualified professional should be consulted before making financial decisions.**
In this article we’ll explain in detail what exactly 1031 exchange accommodators (also known as facilitators or Qualified Intermediaries) do for you and why they are so essential throughout the entire exchange process.
You will also learn who qualifies as a QI, how much their services cost, and what you should look for when seeking a highly competent 1031 exchange facilitator.
Let’s start with the definition of a Qualified Intermediary.
What Is a Qualified Intermediary?
Qualified Intermediary Definition
Treasury Regulation §1031.1031(k)-1(g)(4)(iii) refers to a qualified entity that facilitates a 1031 exchange as a QI.
Under this Treasury Regulations, a Qualified Intermediary (QI) is a non-financial entity having entered a QI Agreement with the IRS. These entities agree to implement certain documentary procedures.
Non-qualified intermediaries operate essentially in the same manner as qualified ones. With no IRS agreement, additional IRS disclosure steps are imposed.
Qualified Intermediaries may also be referred to as 1031 exchange accommodators, facilitators, or 1031 exchange companies. Under terms you or your attorney negotiate, they’re paid a fee to bring your 1031 exchange to a successful conclusion.
Third party entities, they’re charged with structuring and orchestrating the 1031 exchange acting on your behalf as fiduciaries. Their fiduciary responsibilities should include:
- assuming legal responsibility for properly carrying out the terms of your agreement and
- seeking specialized legal, tax, and accounting advice as needed for complex matters.
They’re guided by a national trade association known as the Federation of Exchange Accommodators (FEA). Beyond that, however, QI’s are not government licensed, regulated or otherwise monitored. Nor are they required to be bonded or insured. Some jurisdictions don’t require any form of minimum equity capitalization, as well. So, it’s highly recommended that your QI be a licensed and regulated entity.
Under the What Does a 1031 Exchange Accommodator Do for You? section coming up later we’ll outline their duties in detail.
Note: Qualified Intermediary can also help you when doing a 1031 exchange into real estate investment trust shares. You can learn more about this type of exchange from our articles:
- Can You Do a 1031 Exchange into a REIT with Section 721 Exchange?
- DST (Delaware Statutory Trust) 1031 Exchanges Explained
Who Is Not Qualified to Serve as Intermediary?
Certain persons are specifically prohibited from serving as your intermediary. To start, you can’t serve as your own QI. Nor generally can your customary real estate broker, securities broker, attorney, or accountant, or anyone who has acted as your agent within the last two years. (That’s two years prior to closing on your relinquished property.)
One exception is when an advisor’s only service performed during the previous two years was related to your 1031 exchange. This means you may rarely use your current attorney, accountant, investment banker, broker or real estate agent.
Also unqualified are related persons falling under IRC Sections 267(b) and 707(b). Included are siblings and spouses but not aunts and uncles. Other entities excluded are corporations, partnerships, and trusts where your interest exceeds 50% ownership.
In addition, we recommend avoiding conflicts-of-interest just in your own best interest. Avoid companies that provide replacement property services while at the same time act as intermediaries. Not only could it disqualify your exchange, but such a relationship might lead to self-dealing on the QI’s part.
Is a Qualified Intermediary Required for a 1031 Exchange?
A QI is required almost always under Section 1.1031 of IRS Regulations. This is primarily because you cannot have access in any form to your relinquished property’s sale proceeds. You may not receive, pledge, borrow, or otherwise obtain benefits of money or other property during the 1031 exchange.
Violations are a gamebreaker, so we’ll repeat: no constructive receipt is permitted at your relinquished property’s point of sale through to the final closing. It must be a 3rd party, i.e. your QI with full control. Ever having possession is an exchange disqualifier with capital gains and other tax deferrals lost.
Is a 1031 Exchange Without a Qualified Intermediary Possible?
Only in a simultaneous 1031 exchange (swap) is a QI not necessarily needed. That occurs only when exchange funds are processed on the same day.
Structured as a true trade, ownership transfers of the relinquished and replacement properties must be done simultaneously. Fair market values (FMV) of each property must be recorded to ensure full tax deferral. And, since it’s unlikely FMVs are equal, compensating cash or other asset(s) exchanged must be conveyed directly to the other party.
Still it’s likely a QI would be beneficial. Even navigating this simplified process is complicated. Intermediaries remove the considerable risk of error which could derail your exchange.
What Does a 1031 Exchange Accommodator Do for You?
Accommodator’s Responsibilities Overview
You must have a written exchange agreement with your QI before closing on your relinquished property. But why wait that long before engaging one? A QI can be your go-to on critical early on planning issues. Yes, your contract is largely filled with boilerplate provisions, but still it can be tailored to meet some of your unique needs and preferences.
In a nutshell, an accommodator:
- acquires the relinquished property from you
- transfers the relinquished property to the buyer with title
- acquires the replacement property from the seller
- transfers the deed to you.
The QI’s goal is to orchestrate a true exchange of real property without altering each exchanger’s financial position. With effectively an even exchange, the exchangers are left with new properties, but their net wealth is unchanged.
But as it’s often said, the devil is in the detail and that is what a QI is about, working without error through a maze of details.
9 Duties and Services of a 1031 Exchange Accommodator (QI)
Accommodators hold the key to successful exchanges. Your Qualified Intermediary:
#1. Completes the 1031 exchange agreement with you
- allows your QI to facilitate the 1031 exchange,
- protects your escrow account, inserting the following Federation of Exchange Accommodators (FEA) recommended language: the exchange account is to be used solely by the QI for its obligations under this agreement and shall not be deemed a part of the QI’s general assets or subject to the claims of creditors of the QI.
- imposes binding fees and other important commitments, and
- in the case of bankruptcy, specifies exchange proceeds go to you, not the QI.
#2. Coordinates with you and any adviser on the structure of your 1031 exchange
Open discussions typically lead to:
- consensus that frequent two-way communication throughout the process are critical
- review of IRS rules and regulations, Treasury Regulations and related Revenue Rulings and Procedures to ensure compliance with planned 1031 exchange transactions, and
- your QI offers to make available outside profession tax services as needed.
#3. Prepares relinquished property documentation
Standard sale agreement procedure undertaken except:
- buyers are alerted they must agree to comply with 1031 exchange requirements while signing off on such documents as assignment and disclosure agreements, and
- QIs convey instructions and necessary documents to the escrow/title company.
#4. Sells your relinquished property on your behalf while holding the proceeds
Again not an atypical real estate property sale with:
- title companies and attorneys carry out standard closings, except the QI actively participates in the process,
- funds are transferred to the QI’s bank account, deposited into a separate, insured account, and
- you having no opportunity to take constructive receipt of those proceeds.
#5. Receives and holds your written information identifying replacement properties
After assisting you in finding suitable replacement properties within 45 days of the relinquished property sale:
- receives in writing your identified replacement(s) and
- further assists in finding a buyer.
Read more in our other guide about 1031 exchange property identification rules.
#6. Participates in replacement asset sale activities
When the replacement asset has been selected:
- you, any advisor, and your QI negotiate with the title company / closing attorney on a purchase and
- your QI disburses exchange funds to the title or escrow company for replacement(s) purchase.
#7. Conveys replacement title to you by deed.
By rule you must be both the seller of the relinquished property and replacement(s) buyer
- so, your QI will verify that both deeds bear your name and
- explained any potential naming issue that could jeopardize the exchange.
#8. Submits a complete accounting of the 1031 exchange for your records
Your QI is responsible for wrapping up exchange including providing:
full, audit-proof documentation of all relevant exchange transactions
- tax-related data needed to file IRS Form 8824 reporting your 1031 exchange transaction on the same-year tax return, and
- any relinquished property taxable gains for reporting on IRS Form 4797.
#9. Submits Form 1099 reporting any interest income earned
Having adhered to all 1031 requirements, the QI has successfully completed the exchange and preserves your tax deferral benefits. Yet this might just be the start since your replacement(s) could be put on the block at any time and the entire process repeated.
Accommodators are middlepersons in a tax deferred 1031 exchange. You must have entered into a written exchange agreement with an accommodator to proceed with the exchange.
In accordance with the agreement, your QI facilitates the sale of the relinquished property and acquisition of the replacement property. The QI then receives and holds relinquished property’s proceeds.
Per the exchange agreement, you cannot receive, pledge, borrow, or otherwise obtain benefits of the money or property held by the QI. This is to ensure you don’t have actual or constructive receipt of the sale proceeds. Remember this is to be an exchange only of like kind investment property. At this time, your QI ensures that the proceeds are readily available for reinvestment in replacement(s).
After replacement(s) are selected, the QI disburses sale proceeds to the title or escrow company to make the purchase. Still in the QI’s name, the intermediary acquires replacement(s) and conveys the title to you by deed.
With that, your investment changes in form only, and thus qualifies the exchange for tax-deferral, no less! That after all is the rationale for deferring taxes. You’re in the same place financially, no wealthier. Yet you were able to reposition your investment(s).
Finally, the QI submits a complete accounting of the 1031 exchange for the seller’s and your records. Forms 1099 are issued for any interest income earned.
Then it doesn’t have to be the end of the story. There are no limitations on how many times your replacement(s) can again be exchanged.
What Are 1031 Exchange Facilitator Fees?
You have a choice between an institutional (bank or title company affiliated) or non-institutional (independent of company affiliation) entities working in your area. Remember that in either case, it’s highly recommended you retain a QI  from a licensed and regulated entity. These entities are specifically established to carry out 1031 exchanges. They should be bonded and insured.
Non-institutional intermediaries tend to cost less. The average qualified intermediary cost to accommodate a standard exchange ranges from $600-$800 for non-institutional and $800-$1,200 for institutional intermediaries.
These 1031 exchange qualified intermediary fees generally cover the qualifying, accommodation and administrative cost of completing a 1031 exchange. Included are messenger, document prep, statement, processing, and notary fees among other service costs.
Also, if you were to include additional properties to sell or acquire, the additional property fee could range from $300-$400.
For example, you are trading up to a $800,000 office building. You’re charged a $1,000 set-up fee, $350 additional property fee, and $250 escrow fee. With accrued interest returned to you rather than the QI per the negotiated exchange agreement, your intermediary fee would total $1,600.
Qualified intermediary costs also vary widely based in part upon any specialized needs or services. For rush requests, the QI might pass on overnight delivery charges. Escrow fees in $200-$300 range may be included along with title insurance charges or billed separately
Some QI’s will charge more based on the market value of the properties but if so, they will usually fall within broad dollar-ranges. Don’t forget that as property values escalate, so does interest income accrue to your QI, assuming that’s part of the agreement.
This can be material with 180 days lapsing from your relinquished property’s sale to the replacement’s closing. With net proceeds of $500,000 paying 2% interest, e.g. $5,000 in interest is accrued.
Rather than interest going to the QI, that income could offset other qualified exchange expenses. But then expect the QI fee to be higher. It’s something to consider in selecting your QI and when drafting the contract. Just be sure to factor accrued interest into your cost calculation.
Lots to consider but this should give you insight into how to compare contract offers for a 1031 exchange facilitator. Perhaps convince you to seek expert counsel in advance.
Apart from 1031 exchange facilitator’s fees, you will have other expenses. Learn more about them in our guide How Much Does It Cost to Do a 1031 Exchange?.
 Under this Treasury Regulations, a Qualified Intermediary (QI) is a non-financial entity having entered a QI Agreement with the IRS. These entities agree to implement certain documentary procedures. Non-qualified intermediaries operate essentially in the same manner as qualified ones. With no IRS agreement, additional IRS disclosure steps are imposed.
 Also adding complexity, there’s another cost factor to consider. It’s your challenge at closings to identify any expenses not qualified for payment out of exchange funds. QI fees qualify but often not all listed closing costs do.
Good planning avoids creating taxable boot in these situations. To learn more, read about escaping boot on non-transactional service (exchange) expenses in our guide How Is Boot Taxed in a 1031 Exchange?. And if your goal is to exchange only a part of your property’s value, read about partial 1031 tax deferred exchange.
How to Find a Good Qualified Intermediary?
Unless you are doing a simultaneous 1031 exchange, you must use an intermediary. Highly qualified QIs must be experts in all aspects of 1031 exchanges.
When selecting one, it is important to consider that few regulations govern these entities. So, conducting due diligence is critical to ensure exchange funds are protected from loss. It’s crucial your QI be experienced with any planned atypical exchange transactions requiring specialized knowledge.
Making the right choice will insure a smooth, error-free exchange meeting your expectations. Especially so if open lines of communications are maintained. Finally, it comes down to working with an intermediary that you’re comfortable with. Someone you trust to act responsibly with substantial amounts of your money. A QI you’re confident will complete successfully a transaction with major financial consequences for you as an investor.
Getting credible answers to pertinent questions from prospective QIs is key. In advance of selecting a QI, reputable 1031 exchange companies will consult with you and your tax advisor. They’ll help you absorb and interpret QI responses to your inquiries regarding:
- availability of credible references and a solid portfolio
- number of years the QI’s been in business and whether they’re a Federation of Exchange Accommodators (FEA) member
- number of exchanges the QI has completed with a calculated average exchange dollar-size
- availability of backup support should something happen to the QI
- expertise of the in area(s) matching your specialized needs
- how your funds will be held, ideally with a Qualified Trust (QTA) or Qualified Escrow Account (QEA)
- where your funds will be held (ideally with a large, reputable FDIC insured bank)
- what insurance the firm carries at a minimum fidelity bond and Errors & Omissions (E&O) insurance
- any exclusive contract requirements and fixed set-up and administrative fee offerings, and
- whether accrued escrow interest will be QI income, and if not, when those funds will be released to you?
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