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Qualified Intermediary for a 1031 Exchange

The Qualified Intermediary (“QI”), sometimes known as an accommodator or facilitator,
is a critical part of a 1031 exchange. Choosing the right provider is key to executing a
successful transaction. 

In order to complete a 1031 exchange, an investor must not
take “constructive receipt” of the proceeds from the sale of the
relinquished property. Constructive receipt is a tax concept in
which a taxpayer is liable for income, which may not have been
physically received, but has been credited to the taxpayer’s
account or otherwise becomes available for him or her to draw
upon in the future. The QI is an entity (person or company) who,
for a fee, acts to facilitate the 1031 exchange by entering into a
contractual agreement for the exchange of properties, avoiding
constructive receipt. Neither the taxpayer nor a “disqualified person”
may serve as a QI.

A “disqualified person” is someone who is the agent of the exchanger
at the time of the exchange. A person who has acted as the
taxpayer’s employee, attorney, accountant, investment banker or
broker, or real estate agent or broker, within the two-year period
preceding the date of the transfer of the first relinquished property,
is treated as an agent of the exchanger, and thereby a disqualified
person. If an attorney has provided tax or legal services to the
exchanger within the prescribed two-year period, the attorney is a
disqualified person.

The 1031 exchange QI is responsible for:
• preparing the 1031 exchange legal agreements and related
transaction documents in order to properly structure the
• receiving, holding and safeguarding the 1031 exchange funds
throughout the transaction; and
• advising, coordinating or consulting on the implementation of the
1031 exchange transaction to ensure compliance with the Internal
Revenue Code, Treasury Regulations and related Revenue Rulings
and Procedures.

A significant amount of care should be taken to select a QI because
of the crucial role this entity plays in the administration the 1031
exchange transaction. This particular industry is unregulated and has
some pitfalls that could put the investor at risk of a failed exchange,
so it is advised not to simply select a QI with the lowest fees.

Established and Experienced
The 1031 exchange process is involved and it takes a competent,
well-established QI to provide services for an investor that comply
with the requirements. Investors are advised to ensure the QI has
many years of experience and understands the 1031 exchange
requirements so they can easily guide clients through a transaction.

Please consult your tax advisor and/or your attorney before considering investing in any DST or other tax related investment. Willow Cove Investment Group, Inc. does not review or comment or approve the use of any investment for tax purposes. Tax related investments must be made with consultation with a tax specialist or attorney outside of Willow Cove Investment Group, Inc. or any of its Registered Representatives