What is a Qualified Intermediary/Facilitator?

A knowledgeable, independent person or company that:

  • Provides the necessary documents and outlines the procedures for completing a proper tax-deferred exchange
  • Helps assure that exchanger receives only property for property by accepting assignment of exchanger’s interest in Sales and Purchase Agreements even though property is deeded directly
  • Completes sale of exchanger’s property
  • Holds sale proceeds-in non-simultaneous exchanges-until the replacement property is acquired
  • Completes purchase of replacement property desired by the exchanger
  • Must not be an “agent” of the exchanger (i.e.: exchanger’s Realtor, attorney, accountant, banker, title company, or relative)
  • Ensures exchanger is not deemed to have “constructively” received any proceeds from the disposition of the relinquished property

Exchange Advantages

  • Allows an owner to dispose of property without incurring immediate tax liability
  • May indefinitely postpone tax liability through use of subsequent exchanges
  • Tax liability is forgiven upon the death of the owner/exchanger
  • Exchanger’s heirs inherit property at stepped up basis
  • An important estate-planning tool

Requirements & Guidelines for a Section 1031 Tax-Deferred Exchange

  1. Qualified With the exception of primary or summer residences, inventory, stocks, bonds, notes, partnership interests or other securities, any real and/or personal property usually can qualify for tax-deferred exchange treatment.
  2. Purpose To qualify for tax-deferred treatment, both the property being relinquished and the replacement property being acquired in the exchange must be “held for productive use in a trade or business or for investment.”
  3. Like-Kind Replacement property acquired in an exchange must be located in the United States and be “like-kind,” that is, “similar in nature or -character,” notwithstanding differences in type, to the property relinquished.  Usually all real property can qualify as “like-kind.”
  4. Holding Generally, no minimum holding period after an exchange is required.  However, a 2-year holding period is required for exchanges between related parties.
  5. Exchange Requirement. A Section 1031 tax-deferred transaction must involve an exchange of properties rather than a sale and purchase. The exchanger must neither receive nor be deemed to have “constructively” received the proceeds from the disposition of the relinquished property or the transaction will be considered a sale and not an exchange. One way this requirement can be met is through the use of a qualified intermediary.
  6. Time Limits for Deferred
  7. Exchanger must identify the replacement property within 45 days after the disposition of the relinquished property; and
  8. Exchanger must close on replacement property before 180 days after the disposition of the relinquished
  9. Multiple Regardless of the number of properties relinquished, the number of replacement properties that may be identified as possible acquisitions is:
  10. – Up to 3 properties, without regard to their fair market value (FMV);
  11. More than 3 properties, if their combined fair market value at the end of the 45 day identification period is not greater than 200% of the total FMV of all relinquished properties; or
  12. If the two rules noted above are not followed, then the exchanger must close on 95% of all the replacement properties