A qualified intermediary (QI) is an independent third party that holds the proceeds from your relinquished property sale and facilitates your 1031 exchange. Using a QI is the IRS-recognized safe harbor for avoiding constructive receipt of sale proceeds — and, in practice, the standard structure for nearly all delayed exchanges. If you receive the sale proceeds directly, even briefly, the transaction no longer qualifies, and the capital gains taxes you intended to defer become due.
The QI must be engaged before your sale closes, making it one of the first decisions in the 1031 exchange process. The industry operates without federal licensing requirements, which means the responsibility of selecting a qualified and trustworthy intermediary falls entirely on you. This guide explains what a QI does, who can and cannot serve in that role, what they charge, and how to evaluate one before entrusting them with your proceeds.
Note: This material should not be construed as tax advice, and you should consult with your tax advisor, as individual tax situations will vary.
Key Takeaways
- A qualified intermediary (QI) is an independent third party that holds sale proceeds and facilitates a 1031 exchange, allowing investors to defer — not eliminate — capital gains taxes under IRS safe harbor rules.
- The QI must be engaged before the relinquished property sale closes. If you take receipt of the proceeds at any point, even briefly, the exchange is generally disqualified.
- Your attorney, CPA, real estate agent, or employee cannot serve as your QI if they have acted as your agent within the past two years. Close relatives and related entities are disqualified regardless of any time period.
- The QI industry is not federally regulated. Verifying a QI’s funds security practices, experience, and insurance coverage is your responsibility as the investor.
- QI fees for a standard delayed exchange typically range from $750 to $1,500, though costs vary by provider and exchange complexity. Consult your tax advisor to understand how exchange costs affect your specific situation.
What Is a Qualified Intermediary in a 1031 Exchange?
A qualified intermediary is a person or company that enters into a written exchange agreement with a taxpayer, acquires and transfers the relinquished property, holds the sale proceeds, and uses those funds to acquire the replacement property on the taxpayer’s behalf.
The arrangement exists because of a concept the IRS calls constructive receipt: the moment you can access or control the sale proceeds, the tax code treats you as having received them, and the exchange fails. By keeping the funds out of your hands entirely, the QI preserves the tax deferral.
Engaging a QI is the standard approach for delayed exchanges, as outlined in IRS like-kind exchange guidance. You may also encounter the terms exchange facilitator, exchange accommodator, or 1031 exchange company — all refer to the same role.
One common point of confusion: the IRS also uses “qualified intermediary” in a separate program through which foreign financial institutions handle U.S. tax withholding. That program has no connection to 1031 exchanges. Throughout this article, QI refers exclusively to the exchange facilitator role.
What Does a Qualified Intermediary Do?
A qualified intermediary documents the exchange, holds the sale proceeds, tracks critical deadlines, and executes the transfers — everything that keeps the transaction within the QI safe harbor defined under Treasury Regulation Section 1.1031(k)-1(g)(4). While a QI will typically remind you of approaching deadlines, it is the IRS that enforces compliance — a missed deadline results in disqualification of the exchange. Here is how the QI fits into each stage of a delayed exchange:
- Before closing: the exchange agreement is signed. The QI and the investor execute a written exchange agreement, and the QI is assigned into the sale contract. This must occur before the relinquished property sale closes.
- At the sale: proceeds go directly to the QI. The investor never takes possession of the funds. The QI holds them — reputable firms use segregated, dual-signature accounts — until they are needed for the purchase.
- Within 45 days: replacement property is identified. The investor submits a written identification of the replacement property to the QI before the 45-day identification period expires.
- Within 180 days: the exchange closes. The QI wires the funds to acquire the replacement property and transfers title to the investor under the terms of the exchange agreement.
- After closing: documentation is provided. The QI supplies the records the investor’s tax preparer needs to report the exchange on IRS Form 8824.
Throughout the process, the QI prepares and executes the IRS-compliant exchange documents required under the safe harbor, such as the Exchange Agreement and the Assignment of Contract.
For reverse exchanges, where you acquire the replacement property before selling the relinquished one, the structure differs and involves an exchange accommodation titleholder rather than a standard QI arrangement. See our overview of reverse 1031 exchanges for details.
Who Can and Can’t Be a Qualified Intermediary?
Almost anyone can serve as a qualified intermediary — except the people most investors would think to ask first. Under Treasury Regulation Section 1.1031(k)-1(k), a QI cannot be the taxpayer or a “disqualified person.” The definition covers two categories:
- Agents from the past two years: anyone who has acted as your agent within the two years before the sale, including:
- your attorney or CPA
- your real estate agent or broker on the transaction
- your employees
One exception applies: services performed in connection with a prior 1031 exchange, or routine title, escrow, trust, or financial services, do not constitute agency for this purpose.
- Related parties, with no time limit: close relatives — including your spouse, siblings, parents, and children — and entities related to you (or to your agent) under Internal Revenue Code (IRC) Sections 267(b) and 707(b) are disqualified regardless of any prior agency relationship.
The underlying requirement is independence: a QI who is answerable to you cannot credibly hold the exchange funds outside your control. The IRS addresses this directly in its fact sheet on like-kind exchanges, which also flags a risk worth taking seriously — some intermediaries have gone bankrupt or failed to perform, causing investors to miss their deadlines and lose their deferral.
That risk is compounded by a structural gap: there is no federal licensing requirement for qualified intermediaries. A few states impose registration, bonding, or insurance obligations, but in most of the country, any non-disqualified person can act as a QI. The responsibility for vetting a QI falls entirely on you as the investor.
How Much Does a Qualified Intermediary Cost?
QI fees for a standard delayed exchange typically run $750 to $1,500. Fee structures vary between providers — some QIs charge a flat administrative rate, while others factor in the interest earned on your exchange funds during the holding period as part of their overall compensation model. Also, reverse and improvement exchanges involve more complex structures and generally cost more.
QI pricing typically includes several components you should understand before comparing providers:
Fee component | What it covers | What to ask |
Setup / administrative fee | Exchange documentation, account setup, coordination with closing | Is this flat or tiered by transaction size? |
Additional property fees | Each relinquished or replacement property beyond the first | What is the per-property charge? |
Interest on exchange funds | Earnings on your proceeds while the QI holds them | Who keeps the interest — you or the QI? |
Wire and processing fees | Fund transfers at each closing | Are these itemized or bundled? |
The interest question warrants close attention. Exchange funds can remain with a QI for up to 180 days, and some intermediaries advertise a low base fee while retaining all interest earned on your proceeds. This arrangement is not inherently problematic, but you must understand which model applies before signing an agreement.
How to Choose a Qualified Intermediary
The QI industry is largely unregulated, which means the burden of due diligence falls on you. Evaluate any QI on three criteria, in this order: how your funds are secured, the firm’s experience, and the insurance coverage backing its work.
Funds Security: Where and How Your Money Is Held
This is the highest-stakes consideration. Ask whether your proceeds will be held in a segregated account in your name or commingled with other clients’ funds, whether the account requires dual signatures for withdrawals, and whether the QI offers a qualified escrow or qualified trust arrangement — structures that place a layer of protection between your money and the QI’s own finances. QI failures are relatively rare, but they have occurred, and investors whose funds were commingled bore the losses.
Experience and Licensing
Look for a firm that handles exchanges as its primary business, not a sideline. Years in operation, annual exchange volume, and familiarity with your exchange type — including reverse or improvement structures if relevant — all warrant scrutiny.
Membership in the Federation of Exchange Accommodators, the QI industry’s national trade association, is a useful indicator: the FEA maintains ethics requirements, offers the Certified Exchange Specialist (CES®) designation, and provides a directory to verify a firm’s standing. Where your state imposes its own requirements, confirm the QI meets them.
Insurance and Bonding
Request details on fidelity bond coverage — which protects against theft or misappropriation of funds — alongside errors and omissions insurance, which covers mistakes in execution. Confirm the coverage limits for both in writing. Neither is federally required, which is why you should ask. The coverage a QI carries voluntarily reflects how seriously it treats the responsibility it holds on your behalf.
Red Flags to Avoid
- Choosing on price alone. A QI holding six or seven figures of your proceeds is the wrong place to cut costs.
- Engaging the QI after the sale closes. The exchange is disqualified at that point.
- Using a disqualified person. Your attorney or CPA may be trustworthy, but IRS regulations disqualify them regardless.
- No written funds-security policy. If a QI cannot clearly explain how your money is held, look elsewhere.
- Part-time intermediaries. Deadline enforcement is the core function; firms that facilitate exchanges occasionally are more likely to miss one.
- Unverified insurance claims. Request coverage details in writing, not just a verbal assertion.
Questions to Ask Before Hiring a QI
Before engaging a QI, a brief interview will reveal whether a firm is equipped to handle your exchange. Ask the following:
- How long have you been facilitating 1031 exchanges?
- How are exchange funds held, and in whose name?
- What happens to my funds if your company closes or files for bankruptcy?
- What fidelity bond and E&O coverage do you carry, and at what limits?
- How do you track the 45- and 180-day deadlines?
- Can you walk me through a complex exchange you have handled?
- Is exchange facilitation your full-time business?
- How many exchanges do you complete in a typical year?
- Have you handled exchanges similar to mine?
- What distinguishes your firm from other intermediaries?
- What is the most common mistake you see investors make?
A qualified firm will answer each question directly and in full. Vague or evasive responses — particularly regarding funds security or insurance coverage — are a reliable signal to look elsewhere.
FAQs
Do you need a qualified intermediary for a 1031 exchange?
Yes, for virtually all exchanges. In a delayed exchange (the structure most investors use), the QI safe harbor is the primary mechanism for avoiding constructive receipt of sale proceeds. The narrow exception is a true simultaneous swap, where two parties directly exchange deeds. This structure is rare in practice and still carries meaningful risk when completed without an intermediary.
Do you need an attorney for a 1031 exchange?
Legal counsel is not required for most 1031 exchanges, though it can be valuable in complex transactions. Note that an attorney who has represented you within the past two years is disqualified from serving as your QI. For guidance on when legal counsel makes sense, see our article on whether you need an attorney for a 1031 exchange.
Can my attorney or CPA act as my qualified intermediary?
In most cases, no. Treasury regulations disqualify anyone who has acted as your agent within the two years preceding the sale — including your attorney, CPA, or real estate broker — from serving as your QI.
When do you need to hire a qualified intermediary?
You must engage a QI before your relinquished property closes. The exchange agreement must be in place at or before closing so that proceeds transfer directly to the QI. If you receive the funds yourself, the exchange is disqualified.
What happens if a qualified intermediary goes out of business during my exchange?
The answer depends on how your funds were held. Proceeds held in a segregated or qualified escrow account are generally protected from the QI’s creditors; commingled funds may not be. This is why funds security should be your first consideration when evaluating a QI — and why bond and insurance coverage are essential factors to assess.
What is the difference between a qualified intermediary and an exchange accommodation titleholder?
A QI facilitates a standard delayed exchange by holding sale proceeds until the replacement property is acquired. An exchange accommodation titleholder (EAT) is used in reverse and improvement exchanges, where an entity must temporarily hold title to the property itself — not just the funds.
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1031 Crowdfunding is not a qualified intermediary, but we can connect you with one if needed. Our platform is designed for the step that follows: once your QI holds the proceeds and the 45-day identification window opens, our marketplace of 70+ available 1031 exchange properties — including Delaware Statutory Trust (DST) offerings — gives you the tools to identify a replacement property within that window. To date, our team has supported more than 2,800 completed 1031 exchanges. Register for an investor account to explore current offerings.
This material should not be construed as tax advice, and you should consult with your tax advisor, as individual tax situations will vary. This is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Any such offer may be made only by means of the applicable Private Placement Memorandum (“PPM”) or prospectus, which contains important information regarding the investment objectives, risks, fees, expenses, and other material terms of the offering. As with all investing, investing in private placements is speculative in nature and involves a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results, forward-looking statements and projections are not guaranteed to achieve the results described, and your actual returns may vary significantly. Investments in private placements are illiquid in nature, and there may be no secondary market or ability to sell the investment should the need for liquidity arise. Securities offered through Capulent, LLC, member FINRA, SIPC.
