1031 exchange fees, for many first time exchangors, represent their most important take-away when interviewing prospective Qualified Intermediaries (QIs). In this day of instant information, QI services though specialized, are commoditized by the consumer. This article is about insight from a QI’s perspective of the exchangor’s mindset after realizing they need to find an accommodator or facilitator of 1031 tax deferred exchanges.
Who is a Qualified Intermediary?
A 1031 Qualified Intermediary (QI) is a company that provides 1031 exchange services to accommodate a 1031 tax deferred exchange. Anyone can be a QI, with a few exceptions. Who cannot be your QI is your law or accounting firm, lawyer or CPA, Realtor, or Financial Planner if he/she has acted as your agent within two years of the exchange or is related to the taxpayer. A disqualified party is one of those exceptions.
Per § 1.1031(k)-1(g)(3) a disqualified person cannot act as the QI, trustee of a qualified trust, or qualified escrow holder in an exchange nor under Rev. Proc. 2000-37, act as an “exchange accommodation titleholder” in a parking transaction.
State Requirements
Washington, Oregon, California, Idaho, Nevada, Colorado, Virginia and Maine have legislated procedures QIs must follow to accommodate exchanges for owners of real and personal property in their states, or be subject to civil or criminal penalties.
Exchange Services
QIs have two primary responsibilities:
- to provide 1031 exchange documentation,
- to hold the exchange proceeds in compliance with Internal Revenue Code regulations.
Additional exchange services may be to assist the exchangor with locating replacement properties or alternative tax deferral strategies, such as a Deferred Sales Trust.
Locating a QI
Prospective 1031 exchange clients locate their subset of 1031 QIs from the suggestions of their Realtors, Lenders, Title Companies, Lawyers, CPAs, Financial Planners and those who have initiated 1031 exchanges. The taxpayer benefits from the referral source’s knowledge and experience to steer them to a knowledgeable and experienced QI. The second group of interest is generated from a QI’s web site, a published article, ad or trade show.
Both start with a suggestion prior to selling to consider the benefits of deferring the capital gains and recaptured depreciation taxes. Once confirming with their accountant or CPA that this makes sense, the taxpayer begins to make contact with prospective QIs. One of the first questions is typically, “How much is the exchange?” At that moment in time, price is the most important factor in determining who the exchangor will engage.
Exchange Fee
Should price be the only factor used when engaging a QI? Personally, I think it is important but quickly falls to a lower priority to expertise, timeliness and experience.
Yes, price is important but there are other factors to consider. There are abundant articles that discuss what to ask, including the complimentary ePaper below that highlights what experienced exchangors tend to ask. QIs typically price their exchanges based upon whether the exchange is a forward or reverse, complexity, state laws and interest earned on the exchange proceeds. The point is the exchangor does not necessarily care, they just want a price that ideally is far less than the one previously received.
Click here to receive a free paper on what to ask a QI.
We Can Help
Atlas 1031 Exchange has been accommodating tax-deferred exchanges of all kinds for more than 17 years. We are fluent in the rules and regulations of IRC Section 1031 and able to help you navigate your exchange.
Contact us today to discuss any questions you may have. Call our office at 1-800-227-1031, email us at info@atlas1031.com, or submit your question through the online form at the top of this page.
