The Qualified Intermediary Role

The Qualified Intermediary, often called a QI or accommodator, is the entity that makes a Section 1031 exchange legally possible. Under Treasury Regulation Section 1.1031(k)-1(g)(4), a taxpayer who wants to defer gain on a real property sale cannot take actual or constructive receipt of the sale proceeds at any point during the exchange. If the exchanger touches the funds, even briefly, the exchange fails and the entire transaction becomes taxable. The Qualified Intermediary steps into the transaction as an independent party, receives the proceeds from the relinquished property sale, holds those funds in a qualified escrow or qualified trust account, and later disburses them to acquire the replacement property on the exchanger's behalf.

Not just anyone can serve as a Qualified Intermediary. The regulations disqualify any person who has acted as the exchanger's employee, attorney, accountant, investment banker, broker, or real estate agent within the two years preceding the exchange, along with anyone related to the exchanger under the family and entity attribution rules. This disqualification exists to ensure the Qualified Intermediary is a genuinely independent party rather than someone who could be pressured to release funds early or advise in a way that creates constructive receipt. Investors in Columbus, OH working with a title company, attorney, or CPA who has represented them on prior transactions need to confirm that firm is not disqualified before engaging them, or use a separate independent Qualified Intermediary company instead.

Ohio does not currently operate a state licensing or bonding regime specifically for Qualified Intermediaries, unlike a handful of other states that impose minimum net worth, fidelity bond, or errors and omissions insurance requirements by statute. Because of that gap, investors in Columbus, OH carry more of the diligence burden themselves when selecting a Qualified Intermediary. Reasonable diligence steps include confirming the QI carries a fidelity bond and errors and omissions insurance, confirming exchange funds are held in a qualified escrow or qualified trust account rather than the QI's general operating account, and confirming the QI uses a bank that separately insures or collateralizes large exchange balances beyond standard deposit insurance limits.

Beyond holding funds, the Qualified Intermediary prepares the exchange agreement, prepares the assignment of the purchase and sale agreements for both the relinquished and replacement properties, receives and time-stamps the exchanger's written identification during the forty-five day period, and coordinates with the closing attorney or title company on both transactions to ensure the exchange documentation lines up with the closing settlement statements. A well-run exchange typically has the Qualified Intermediary engaged before the relinquished property even goes under contract, since the exchange agreement must be in place before that closing occurs for the exchange to qualify from the start.