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What Is a Qualified Intermediary?
By Priya Raman
The one hire you cannot make yourself, literally.
The one hire you cannot make yourself, literally.
Your CPA cannot do this job. Neither can your real estate agent, your attorney, or your cousin who is great with money. A qualified intermediary is a specific, independent role the IRS requires for a reason: so you never touch the sale proceeds, not even for an afternoon.
The IRS requires that you never have "constructive receipt" of the sale proceeds. If the money passes through your hands even briefly, the exchange fails and the full gain becomes taxable immediately. The QI holds the funds outside your control until you are ready to purchase the replacement property.
Your attorney, accountant, real-estate agent, or any other person who has provided services to you within the past two years is disqualified from serving as your QI for that exchange. The QI must be a truly independent party.
There is no federal licensing requirement for QIs, but many states require registration. Look for a member of the Federation of Exchange Accommodators (FEA) with experience, fidelity bonds, and separate escrow accounts for client funds.
This page explains the role in general terms; it is not tax or legal advice for your exchange. Vet any licensed QI directly and loop in a tax professional before you sign anything.
No. The IRS specifically disqualifies you, and it also disqualifies your attorney, accountant, real estate agent, or anyone who has performed services for you in the two years before the exchange. The intermediary has to be someone with no other relationship to your transaction.
Your funds can be at risk if the intermediary is not properly bonded or does not hold your money in a segregated escrow account. That is exactly why the safeguards mentioned above, fidelity bonds and separate accounts, are not optional extras. Vet the intermediary the way you would vet anyone about to hold your money for months at a time.
Fees vary by intermediary and by how complex the exchange is, typically a flat fee for a standard exchange plus more for reverse or build-to-suit structures. Get a written fee schedule before you engage anyone, since surprise charges at closing are the last thing you want on a deadline.
Before your relinquished property closes, not after. The exchange agreement and assignment documents have to be in place ahead of the sale so the intermediary, not you, receives the proceeds at closing. Calling a QI after you have already closed is too late.