What is a 1031 exchange qualified intermediary?
A qualified intermediary in a 1031 exchange is a company that signs a written exchange agreement with you, takes your place in the sale and purchase, and holds the sale proceeds until they buy your replacement property. The IRS definition is in Treasury Regulation 1.1031(k)-1(g)(4)(iii): a QI is a person who is not you and not a “disqualified person,” who enters into a written exchange agreement with you, and who acquires your relinquished property from you, transfers it, then acquires the replacement property and transfers it to you.
You will hear several names for the same job. Accommodator, exchange facilitator, 1031 intermediary and 1031 exchange company all usually mean a qualified intermediary. Some state laws use “exchange facilitator” as the wider term, covering QIs, the titleholders used in reverse exchanges and qualified escrow holders.
The QI is not a tax advisor and is not your agent. Its job is narrow: keep you out of constructive receipt of the money, follow the exchange agreement and document each step so the safe harbor holds up.
Why you need an intermediary for a 1031 exchange
You need an intermediary for a 1031 exchange because if you receive the sale cash, or even have the right to get it, the IRS treats the deal as a taxable sale followed by a purchase. That is the constructive receipt problem. The QI safe harbor in the regulations solves it by putting a third party between you and the money.
The safe harbor only works if the exchange agreement locks you out of the funds. Under Treas. Reg. 1.1031(k)-1(g)(6), the agreement must bar you from receiving, pledging, borrowing or otherwise getting the benefit of the money before the exchange period ends, with only two exceptions:
- If you identify no replacement property by day 45, you can get the funds after day 45.
- If you identify property, you can get the funds once you have received everything you are entitled to under the agreement, or after a material and substantial contingency outside your control that arises after the 45-day period and that the agreement names in writing.
- Otherwise, the money stays with the QI until day 180 or the date the exchange is completed.
What a 1031 exchange intermediary does, step by step
A 1031 exchange intermediary runs the paperwork side of the exchange from the day you sign the agreement to the day you take title to the new property. In a forward exchange the work usually looks like this:
- Before your sale closes: signs the exchange agreement with you and prepares an assignment of your purchase and sale contract.
- At the sale closing: sends written notice of the assignment to the buyer and directs the closing agent to wire your net proceeds to the QI, not to you.
- During the 45 days: receives your signed identification of replacement properties. The regulations let you deliver it to the QI, since it is not a disqualified person.
- Before the purchase closes: takes an assignment of your contract to buy the replacement and notifies the seller in writing.
- At the purchase closing: wires the exchange funds to the closing agent so the replacement is deeded to you.
- After closing: sends you an accounting of funds received, paid out, and any interest, for your CPA to use on Form 8824.
Treas. Reg. 1.1031(k)-1(g)(4): the qualified intermediary rule
Treas. Reg. 1.1031(k)-1(g)(4) says that if you use a qualified intermediary, the QI is not treated as your agent, so its receipt of the money is not your receipt. That one sentence is what makes most deferred exchanges possible. The rest of paragraph (g)(4) sets out how a QI must be involved.
Paragraph (g)(4)(iv) says a QI is treated as acquiring and transferring property in three ways: it takes legal title itself, it signs an agreement with the buyer to transfer the relinquished property, or it signs an agreement with the replacement seller to transfer that property to you. Most QIs never take title. They use the second and third options through assignment.
Paragraph (g)(4)(v) explains how assignment works. If your rights under a contract are assigned to the QI and all parties to that contract get written notice of the assignment on or before the date of the transfer, the QI is treated as a party to that contract. Miss the notice and the safe harbor may not apply. That is why the QI needs your contracts before the closing, not after.
Paragraph (g)(4)(ii) also requires that the exchange agreement contain the (g)(6) limits on your access to the money. A QI agreement without those limits does not give you the safe harbor.
Who can’t be your QI: disqualified persons
Your qualified intermediary cannot be you or a disqualified person, and Treas. Reg. 1.1031(k)-1(k) defines that group broadly. The main test is whether the person has acted as your agent within the two years ending on the date you transfer the relinquished property.
Two kinds of past work do not count against a person: services for you on exchanges meant to qualify under Section 1031, and routine financial, title insurance, escrow or trust services from a financial institution, title insurance company or escrow company. So your title company can usually be your QI, and a QI you used for a prior exchange can be used again.
| Person | Can they be your QI? | Rule |
|---|---|---|
| You, or an entity you own | No | 1.1031(k)-1(g)(4)(iii) |
| Your attorney, accountant, employee, investment banker or broker in the past 2 years | No | 1.1031(k)-1(k)(2) |
| Your real estate agent or broker in the past 2 years | No | 1.1031(k)-1(k)(2) |
| Family members and entities related to you under Sec. 267(b) or 707(b), using 10% instead of 50% | No | 1.1031(k)-1(k)(3) |
| Entities related to your agent under the same 10% test | No | 1.1031(k)-1(k)(4)(i) |
| A bank or bank affiliate linked to your broker only through a controlled group | Yes, under a narrow exception | 1.1031(k)-1(k)(4)(ii) |
| A title or escrow company that only gave routine title or escrow services | Yes | 1.1031(k)-1(k)(2)(ii) |
| A QI that handled your earlier 1031 exchanges | Yes | 1.1031(k)-1(k)(2)(i) |
Are 1031 exchange companies regulated?
There is no federal license for 1031 exchange companies, and most states do not regulate them either. Nine states have their own rules. Washington’s law goes so far as to require a prescribed disclosure on each facilitator’s website and contract, which includes a statement that these services are not regulated by any state or federal agency.
Most of these laws apply to a facilitator that does business in the state, holds funds from property in the state or has an office there. Nevada and Maine exclude QIs that only hold proceeds from property outside their state. A QI based in another state can still be the right choice; just ask which state law, if any, covers your exchange.
- California, Colorado, Maine and Oregon require exchange funds to be invested under a prudent investor standard aimed at liquidity and preserving principal. California, Maine and Oregon bar knowingly mixing them with the facilitator’s operating money; Colorado bars mixing them with operating money or other clients’ funds, though it allows pooled funds tracked by client.
- Nevada requires your written approval and the licensee’s before money is withdrawn (NRS 645G.310) and keeps exchange funds separate from the licensee’s own money (645G.350).
- Washington requires a separately identified account for each client, with earnings credited to the client (RCW 19.310.110), and makes a knowing violation of certain rules a class B felony (RCW 19.310.120).
- Virginia allows a court to impose a civil penalty of up to $2,500 per willful violation (Code 55.1-806).
| State | Statute | License | Fidelity bond or alternative | E&O cover |
|---|---|---|---|---|
| California | Fin. Code 51000 et seq. | No | $1,000,000 bond or deposit, or qualified escrow/trust with dual sign-off (51003) | $250,000 (51007) |
| Colorado | C.R.S. 6-1-721 | No; violation is a deceptive trade practice | $1,000,000 bond plus E&O, $1,250,000 deposit, or qualified escrow/trust | $250,000 |
| Connecticut | Gen. Stat. 36a-830 to 36a-836 | No | $1,000,000 bond, or separately identified account or qualified escrow/trust with dual sign-off (36a-832) | $250,000 (36a-833) |
| Idaho | Idaho Escrow Act, Code 30-901 et seq. | Department of Finance applies the Escrow Act to QIs | Guidance 2020-03-SB allows a $1,000,000 fidelity bond | $250,000 under the same guidance |
| Maine | 10 M.R.S. 1395 to 1400 | Yes | $250,000 bond or deposit, or qualified escrow/trust (1397) | $100,000 (1397) |
| Nevada | NRS chapter 645G | Yes, Division of Financial Institutions | $1,000,000 bond or deposit (645G.320) | $250,000 (645G.330) |
| Oregon | ORS 673.800 to 673.825 | No | $1,000,000 bond or deposit, or qualified escrow/trust (673.810) | $250,000 (673.810) |
| Virginia | Code 55.1-800 to 55.1-806 | No | No bond; separately identified account or qualified escrow/trust (55.1-802) | $250,000 or equal deposit (55.1-803) |
| Washington | RCW 19.310 | No | $1,000,000 bond, or qualified escrow/trust (19.310.040) | $250,000 or equal deposit (19.310.060) |
How a QI holds your money, and why it matters
Your exchange funds are usually held in one of three ways: a pooled account with other clients’ money, a separately identified account under your name or tax ID, or a qualified escrow or qualified trust where withdrawals need your sign-off as well as the QI’s. The last two give you more control and visibility. Ask which one your QI uses before you sign.
This is not a theoretical risk. In November 2008, LandAmerica 1031 Exchange Services stopped taking customers and ended operations; its parent’s filing with the SEC said part of the exchange funds sat in auction rate securities that could not be sold or borrowed against after that market froze. Exchangers with money in the middle of an exchange were left waiting on a bankruptcy process.
Interest on your funds is governed by Treas. Reg. 1.468B-6. If the agreement pays all earnings to you, you report that income. If it doesn’t, the funds are treated as a loan from you to the facilitator, and the below-market loan rules can apply, though loans of $2,000,000 or less held for 6 months or less are exempt under Treas. Reg. 1.7872-5(b)(16). In plain terms: read who keeps the interest.
Qualified intermediary fees: what you pay for
Qualified intermediary fees are set by each company. The IRS does not set them, and none of the state QI laws above caps them. We have not found a government source that publishes typical fee levels, so instead of quoting a range we list the charges you should expect to see on a quote and compare them line by line.
Two rules affect fees. Under Treas. Reg. 1.468B-6(b)(4)(ii), a QI fee counts as a transactional expense only if the agreement fixes it, as a dollar amount or a set formula, on or before the day you transfer the relinquished property. Get the fee in writing before closing. And Washington’s statute requires a facilitator to disclose any financial benefit it gets from recommending other products or services.
| Fee type | What it covers | When it matters |
|---|---|---|
| Base exchange fee | Agreement, assignments, notices and closing coordination for one sale and one purchase | Every forward exchange |
| Additional property fee | Each extra relinquished or replacement property | Selling two buildings or buying several |
| Interest or earnings split | Who keeps the interest on your funds and at what rate | Large balances held for months |
| Wire and overnight charges | Outgoing wires for deposits and closings | Every disbursement |
| Earnest money or early release fee | Sending a deposit to a replacement seller before closing | Competitive purchases |
| Reverse or improvement exchange fee | Forming and running the titleholder entity, extra legal documents | Buying first or building on the replacement |
| Cancellation fee | An exchange that ends without a purchase | If your deal falls through |
How to choose among the best 1031 exchange companies
The best 1031 exchange company for you is the one that protects the money first and knows your type of deal second; price comes third. A low fee does not help if the funds are pooled with thin controls. Rankings and “best of” lists rarely say how the money is held, so check that yourself.
- Fund safety: separately identified account or qualified escrow, dual authorization for withdrawals, and written confirmation of where your money sits.
- Coverage: fidelity bond and errors and omissions policy limits that fit your balance, with proof of current coverage.
- Ownership and backing: who owns the QI, whether it is part of a bank or title company, and what audits it gets.
- Experience with your deal: multifamily sales, multiple replacement properties, DSTs, reverse or improvement exchanges.
- Response time: who answers the phone at day 44 and how quickly wires go out.
- Clear documents: an exchange agreement that states the fee, the interest terms and the (g)(6) release rules in plain language.
Questions to ask a qualified intermediary before you sign
Ask these questions in writing and keep the answers with your closing file. A good QI will answer each one without hesitation.
- Will my funds be in a separate account under my tax ID, a pooled account, or a qualified escrow or trust?
- Who must sign to move money out, and will I approve each wire?
- What bank holds the funds, and how much is covered by deposit insurance?
- What are your fidelity bond and E&O limits, and can I see the certificates?
- Which state law, if any, regulates you for my exchange?
- Who keeps the interest, and how is it reported to me?
- What is the full fee, including extra properties, wires, early deposits and cancellation?
- Can you have the agreement and assignment ready before my sale closes?
- How do you handle the identification notice, and will you confirm receipt in writing?
- Have you handled reverse, improvement or DST exchanges, if I might need one?
- What happens to my funds if I identify nothing, or if my purchase falls through after day 45?
- Do you receive anything for referring me to a DST sponsor, lender or other provider?
Qualified intermediary vs accommodator, EAT and escrow
A qualified intermediary handles forward exchanges, where you sell first. In a reverse exchange, where you buy first, the role is played by an exchange accommodation titleholder (EAT), usually an LLC formed by the QI company that takes title to one of the properties for up to 180 days under Revenue Procedure 2000-37. Many companies offer both. Our reverse 1031 exchange guide covers that structure.
A qualified escrow account or qualified trust under Treas. Reg. 1.1031(k)-1(g)(3) is a separate safe harbor for holding cash, and some state laws let a facilitator use one in place of a bond. Your title or escrow company can often act as the holder, as long as it is not a disqualified person. A DST sponsor is different again: it sells replacement property and is not your intermediary.
Worked example: the QI’s role on a $3 million sale
This example uses round figures to show how money moves and what is at stake.
You sell a 20-unit building for $3,000,000 on Monday, November 16, 2026. You paid $1,800,000 and took $600,000 of depreciation, so your adjusted basis is $1,200,000. Selling costs are $150,000, so your gain is $1,650,000. At closing, $1,100,000 pays off the loan, and the closing agent wires the remaining $1,750,000 to your QI, not to you.
If the money had come to you instead, and you were in the top 2026 bracket, the tax would be roughly: $150,000 on the depreciation (25% of $600,000, per IRS Topic 409), $210,000 on the remaining $1,050,000 at 20% (the 20% rate starts above $545,500 of taxable income for single filers and $613,700 for joint filers, Rev. Proc. 2025-32), and $62,700 of net investment income tax at 3.8%. That is about $422,700 of federal tax, before state tax.
The deadlines from a November 16 sale: identification is due by Thursday, December 31, 2026 (day 45). Day 180 is Saturday, May 15, 2027. But the exchange period ends on the earlier of day 180 or your return due date, which for most individuals is April 15, 2027. Unless you file an extension, you have to close by April 15, about a month sooner. A good QI flags this at the start; ask yours to put the exact end date in writing.
To defer all of the gain you would buy one or more replacements costing at least $2,850,000 (the $3,000,000 price less $150,000 of selling costs), reinvest the full $1,750,000 held by the QI and replace the $1,100,000 of debt with new debt or added cash. Any cash you take out is taxable boot.
Selling your building to Skyline in a 1031 exchange
Skyline Capital Investments buys apartment buildings with five or more units nationwide, and we work with sellers’ qualified intermediaries all the time. We buy directly, close on your timeline, and can work inside 1031 deadlines. Tell us who your QI is and when you need to close, and we will sign the assignment notice and route the proceeds the way your exchange agreement requires.
If you have not picked a QI yet, line one up before you sign a purchase contract, so the assignment and closing instructions are ready on day one. You can also run your numbers first with the 1031 exchange calculator.
