A qualified intermediary (QI) is the independent company that holds the money from the property you sell and then uses it to buy your replacement property, so the cash never lands in your hands and your 1031 exchange stays valid. The IRS safe-harbor rules make a QI effectively mandatory for a delayed exchange: if you take receipt of the proceeds, even for a day, the exchange collapses and the deferred gain becomes taxable that year. You bring the QI in before you close on the sale, not after.
I watched this nearly come apart for an owner selling a two-unit rental off South Fletcher. He had signed the listing, lined up a buyer, and only remembered the exchange the week of closing, when he mentioned he'd planned to have his own accountant hold the funds. The code flatly forbids that. We caught it in time, but it cost him a frantic afternoon and a wire he almost sent to the wrong account.
The whole point of the intermediary is to keep you at arm's length from your own money long enough for the swap to count.
Does a 1031 exchange require a qualified intermediary?
In practice, yes. The tax code offers a few safe harbors for an exchange, and the one nearly every real-world deal uses is the qualified-intermediary safe harbor. A delayed exchange, where you sell first and buy a replacement weeks or months later, cannot be done by parking the proceeds in your own account. The moment you can reach the cash, the IRS treats it as a completed, taxable sale. That doctrine is called constructive receipt, and the QI exists to get around it cleanly.
The only common 1031 that runs without one is a simultaneous same-day swap, where two owners trade deeds at the same closing. That almost never fits a financed purchase or a normal market sale, and even owners who could swing an all-cash trade usually still route it through a QI for the paper trail and the safe-harbor protection. So the intermediary is the standard path, not the exception.
The full rule set behind the exchange, the like-kind requirement and the value and debt you have to replace to defer everything, lives on our 1031 exchange rules page. Worth one note for owners here: with no state income tax in Florida, everything the intermediary protects is federal, so the stakes are entirely your federal capital-gains and depreciation-recapture bill.
What does a qualified intermediary actually do?
The QI runs the mechanics and holds the money. It drafts the exchange agreement, takes an assignment of your sale contract, and receives the sale proceeds into a separate escrow or trust account instead of letting them flow to you. When you're ready to buy, it takes an assignment of your purchase contract and wires those funds to close on the replacement property.
You still deed directly to your buyer, and the replacement seller still deeds directly to you. The QI never appears in the chain of title; it sits in the paper chain alongside it. That direct-deeding setup is what lets a single intermediary handle the exchange without the property bouncing through an extra owner.
It also tracks the calendar. The QI documents the date your 45-day identification window and 180-day closing window begin and confirms your written identification arrives on time. (Those deadlines, and how the two clocks run at the same time rather than back to back, are covered on our 1031 exchange timeline page.) At the end, it hands you the closing statements and an accounting you give your CPA, who reports the exchange to the IRS on Form 8824.
What a QI does not do is give you tax or legal advice. It holds funds and pushes paper. The advice belongs to your CPA and your attorney, which is part of why neither of them can also be your intermediary.
A reverse exchange, where you buy the replacement before selling the old property, uses a cousin of the QI called an Exchange Accommodation Titleholder, a separate parking structure we walk through on our reverse 1031 exchange page.
Who cannot be your qualified intermediary?
Under Treasury Regulation 1.1031(k)-1(k), a "disqualified person" cannot serve as your QI. That covers anyone who has acted as your employee, attorney, accountant, real estate agent, or investment broker within the two years before the sale, along with your close relatives and any entity you control. The rule keeps the intermediary independent, so you can't quietly direct the money and undo the whole arm's-length arrangement.
This trips people up, because the instinct is to hand the job to someone you already trust. Your closing attorney, the agent who sold the property, the CPA who filed your last two returns: all disqualified. The trust is exactly the thing the rule is written to neutralize.
| Party | Can hold your exchange funds? |
|---|---|
| A dedicated 1031 exchange company | Yes |
| A bank or title-company QI you have no advisory tie to | Yes |
| Your CPA who prepared a return in the last two years | No |
| The agent representing you on the sale | No |
| Your closing attorney | No |
| A relative, or a company you control | No |
Can my bank be a qualified intermediary?
Yes. A bank can act as your QI, and several of the largest intermediaries in the country are subsidiaries of national banks or title insurers. The same disqualified-person test applies: if that bank, or a banker there, has served as your advisor or agent in the prior two years, it's out. A bank where you simply keep accounts is fine to use through its exchange division.
One caution. A bank's name on the door is reassuring, but money held by a QI is not protected the way your insured checking deposit is, and intermediaries are not federally licensed. A bank-affiliated QI still gets vetted on how it actually holds your funds, the same as any independent shop.
How do I find and vet a qualified intermediary?
Find a QI through a dedicated 1031 exchange company, a referral from your title company, or a CPA or attorney who closes exchanges regularly. There is no federal license for intermediaries and only a handful of states regulate them, so the vetting falls to you. Before you wire a single dollar, get clear answers on four things:
- How your funds are held. You want a separate qualified escrow or qualified trust account, ideally under your own tax ID, not pooled with every other client's money in one operating account.
- Bonding and insurance. Ask for the size of the fidelity bond and the errors-and-omissions coverage, and confirm both in writing.
- Who can move the money. The strongest setups require your written authorization to release funds, so no single employee can wire your proceeds out alone.
- Track record. Years in business, real references, and whether the company is registered in one of the states that regulate QIs (California, Nevada, Colorado, Idaho, Virginia, and Washington among them).
This isn't paranoia. After the 2008 housing crash, several intermediaries failed or had client money drained by their own principals, and the exchangers were left with the loss and a tax bill on top. Your proceeds can sit with the QI for up to 180 days, so where they sit matters more than the fee.
Have your own attorney read the exchange agreement before you sign it. And line the QI up early. When we list an investment property for a client who's planning an exchange, whether it's a short-term rental near the beach or a small storefront off Centre Street, we name the intermediary before the sign goes in the yard. Out in the Yulee and Wildlight corridor, where investors are trading older Nassau County rentals into newer construction, that head start is often the difference between a clean closing and a scramble.
How much does a qualified intermediary cost?
For a standard forward exchange, the base QI fee usually runs from a few hundred dollars up to around fifteen hundred, with add-ons for each additional property in the deal. Set against the federal capital-gains tax you're deferring, that fee is usually a rounding error. The full cost picture, including escrow, title, and the steeper premium a reverse exchange carries, is laid out on our 1031 exchange cost page.
The intermediary is the least glamorous hire in a 1031 and the one that quietly decides whether the whole thing holds together. Pick it first, and vet it like it's holding six figures of your money, because for a few months it is.
Frequently asked questions
Does a 1031 exchange require a qualified intermediary?
For a delayed exchange, effectively yes. The tax code's qualified-intermediary safe harbor is the path nearly every real-world 1031 uses, because if you take receipt of the sale proceeds yourself, the IRS treats it as a taxable sale under the constructive-receipt doctrine. The only common exception is a rare simultaneous same-day swap, and even those often use a QI for safety.
How much does a 1031 qualified intermediary cost?
A standard forward exchange typically runs from a few hundred dollars up to around $1,500 for the base QI fee, plus add-ons for each additional property. That cost is small relative to the federal capital-gains tax being deferred. A reverse exchange costs more because of the extra parking structure involved.
Can my bank be a qualified intermediary?
Yes. Many of the largest intermediaries are subsidiaries of banks or title insurers, and a bank can serve as your QI as long as it isn't a disqualified person. A bank where you only hold accounts is fine, but if that bank or its officer acted as your advisor or agent in the prior two years, it cannot serve. Bank-held funds are not insured the way a checking deposit is, so vet how the money is held.
How do I find a qualified intermediary for a 1031 exchange?
Find one through a dedicated 1031 exchange company, a title-company referral, or a CPA or attorney who handles exchanges often. There is no federal license for QIs, so vet each one on how it segregates your funds (a separate qualified escrow or trust account), its fidelity bond and errors-and-omissions coverage, whether releasing funds requires your written authorization, and its track record.