Guides
The Qualified Intermediary Role Explained
Why a qualified intermediary is required under the safe harbor rules, what disqualifies a party from serving in that role, and how exchange funds stay outside investor control.
Service Overview
How this service works
A qualified intermediary, often called a QI or accommodator, is the party required under the safe harbor rules to structure a delayed 1031 exchange. The core requirement behind the qualified intermediary rule is straightforward: the investor can never have actual or constructive receipt of the exchange proceeds between the sale of the relinquished property and the purchase of the replacement property. If the investor could touch the funds at any point, the exchange would be treated as a sale followed by a separate purchase, and the deferred gain would become taxable.
The qualified intermediary steps into that gap. The relinquished property proceeds are wired directly to the qualified intermediary at closing rather than to the investor. The qualified intermediary then holds those funds, typically in a segregated escrow or qualified trust account, until the replacement property is ready to close, at which point the funds are wired directly to complete that purchase.
Not just anyone can serve as a qualified intermediary. The regulations disqualify anyone who has acted as the investor's agent within the two years before the exchange, which includes the investor's attorney, accountant, real estate agent, investment banker, or broker, unless that relationship was limited to routine services related to the exchange itself. Family members and related entities are also disqualified. This is why investors typically hire an independent qualified intermediary company rather than relying on a professional who already represents them.
The qualified intermediary also prepares the exchange agreement, receives the investor's written identification of replacement property during the forty five day period, and coordinates directly with title companies and closing agents on both transactions. Choosing a qualified intermediary before the relinquished property closes is essential, since the exchange must be set up prior to that closing to preserve deferral.
Service Details
What is included
Comprehensive support to keep your exchange compliant and on schedule.
Explanation of the actual and constructive receipt rule
Who is disqualified from serving as a qualified intermediary
How exchange funds are held and disbursed
Timing requirements for setting up the intermediary before closing
The qualified intermediary's role in identification and closing coordination
Why family members and related entities cannot serve in this role
Common Scenarios
When this service helps
A Denver investor is under contract to sell and has not yet engaged a qualified intermediary.
A Colorado Springs investor wants to know whether their longtime accountant can serve as the qualified intermediary.
A Boulder investor wants to understand where exchange funds are held between the two closings.
Example Project
Qualified Intermediary Role Guidance
Example of the type of engagement we can handle
Client Situation
Investor under contract to sell a Denver property has not yet engaged a qualified intermediary and wants to understand the role before the closing date arrives.
Our Approach
We explain the actual and constructive receipt rule, review whether any proposed intermediary candidate has a disqualifying prior relationship with the investor, and walk through how funds will move from the relinquished property closing through the replacement property purchase.
Expected Outcome
Investor understands the qualified intermediary requirement, avoids selecting a disqualified party, and has the exchange structure in place before the relinquished property closes.
Educational content only. Not tax, legal, or investment advice. A 1031 exchange defers income tax on qualifying real property and does not remove transfer or documentary taxes.
The Forty Five Day Identification Period Explained
Plain language guide to how the forty five day identification clock starts, what counts as a valid identification, and why the deadline never moves.
The One Hundred Eighty Day Exchange Deadline Explained
How the one hundred eighty day closing window is calculated, why it runs alongside the identification period instead of after it, and what triggers an earlier deadline.
Understanding Boot in a 1031 Exchange
A plain law explanation of cash boot and mortgage boot, how each becomes taxable, and how investors structure a purchase to avoid triggering either one.
Like Kind Property Requirements Explained
What counts as like kind real property after the Tax Cuts and Jobs Act, and why holding purpose matters more than property type.
Common Questions
Frequently asked questions
Why does a Denver, CO exchange require a qualified intermediary?
The qualified intermediary holds exchange proceeds so the investor never has actual or constructive receipt of the funds between the sale and purchase. Without that separation, the transaction is treated as a taxable sale rather than a tax deferred exchange. Denver, CO investors must set up the qualified intermediary arrangement before the relinquished property closes.
Can a Denver, CO investor's own attorney or accountant serve as their qualified intermediary?
Generally no. Anyone who acted as the investor's agent within the two years before the exchange, including an attorney, accountant, real estate agent, or broker who represented the investor, is disqualified from serving as the qualified intermediary, unless the relationship was limited to routine exchange related services.
Where does the qualified intermediary hold exchange funds for a Denver, CO transaction?
Funds are typically held in a segregated escrow or qualified trust account established for the exchange. The investor does not have signing authority or access to withdraw funds from that account, which preserves the required separation from actual or constructive receipt.
When should a Denver, CO investor set up a qualified intermediary?
Before the relinquished property closes. The qualified intermediary agreement must be in place prior to that closing so the sale proceeds can be wired directly to the qualified intermediary instead of to the investor. Setting up the intermediary after closing is too late to preserve the exchange.
Coverage Areas
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