Who to use as a QI in a 1031 delayed exchange

Question

i don't see anywhere in the IRS code that states that the QI needs to be anyone in particular.  It just can NOT be a relative,  or your accountant, realtor, etc.

I was just quoted a $1200 price for a 1031 exchange professional.  A title company aught to offer it as a standard service...not for free.  But not for $1200 for crying out loud.

Anybody use a friend or relative who is a lawyer or accountant?  I have a neighbor who would not steal from me who  has an accounting degree.  I could have the title company set up an escrow account in her name.and get a receipt of some sort.  I could make a list of 3 properties,  have it notarized and give it to her.  she could receipt that. That is about it from what I can tell.  Then she would give instructions to the title company to fund the next purchase.

Anybody ever do this?

Bill Exeter · Answer

Qualified Intermediary fees vary by geographic area.  The fees tend to be $700.00 to $1,200.00 on the west coast and $1,200.00 to $1,800.00 on the east coast where there is less competition.  The vast majority of Qualified Intermediaries that do it as a line of business are generally $700 to $900.00.

You must be very, very careful about using a friend who can accept your identification, communicate with the title company, etc.  There are specific agreements that are required and that must contain very specific language in order to qualify for tax-deferred treatment.

If you use someone that is willing to help but has no idea what is required, no experience in how to administer a 1031 Exchange and/or what documents and language must be used/included, you will have a very difficult time during an audit.  We serve as an expert witness and I see it time and time again where investors used someone that was not experienced and had no expertise in 1031 Exchanges.

Joel Owens · Answer

Marian I think you are stepping over dollars to try to save pennies.

You will not think that you saved money when the IRS comes a calling with an audit to disallow the exchange.

Account Closed · Answer

Good luck. I have no experience with 1031 exchanges, but I hope you hire a professional.  I know laws seem easy when you read them, but the actual practices often are much more complex. When I used to practice law I would often see people that tried to do their own divorces to "save money on an attorney" and then didn't know the tricks of the trade that someone experienced would know and it would cost them tens of thousands of dollars over time. :-(

Marian Smith · Answer

efirstbank1031.com appears to offer a delayed exchange for $400.  They also have about 45 pages of instructions, but most of what I need can fit on a page.

Marian Smith · Answer

Thanks Kelly.  i am sure I can find someone to do it for a reasonable fee.  The only disallowed story I can find is when an investor used his attorney son as the intermediary.   But i can imagine screwing up a divorce to the tune of tens of thousands of dollars.  My sister in law got a large alimony grant in a divorce and her attorney didn't stipulate how it was to be paid  and instead of monthly over a period of years as expected, her husband gave her a lump sum and she paid a lot more in taxes that way.  Presumably he, the cheating ***, got a big tax break.

Marian Smith · Answer

Thanks Dawn...and everyone else for responding.  If I go through with it I will try to return and share my experience.  But we are moving so i may forget.

Dawn Anastasi · Answer

In this case it wasn't truly the "title company" themselves, but a business associated with the title company located in the same building. Separate legal entity I guess.

Marian Smith · Answer

Dawn, I called a title company because that makes sense....for them to facilitate an exchange to get the title and closing business.  The one I called said they couldn't do it because they would be providing other services for me thus disqualifying themselves--which doesnt make sense really, but they gave me the name of an attorney.   Stewart Title has a subsidiary called Asset something or another and they were over 1k.  I can see the 1k price tag  for a business of some sort...there are all kinds of like exchanges.  But the sale of one residential property to be exchanged for another of an equal or higher price seems simple and straight forward.   I would feel like a schmuck paying that much.  The people referring to it as a "small fee" must just have more money than I do.

Marian Smith · Answer

I am asking if anyone has ever asked an intelligent, trustworthy friend to act as qualified intermediary in a 1031 exchange.  And yes, I would trust my accountant friend to receive the proceeds from a real estate transaction and place the money in escrow in such a manner that I never touch it,  hold documentation for three prospective properties, and later release the escrowed funds when I close on a property or fail to close on one.  It would be a felony if she stole it and she has assets of her own and moreover, she is a nice person.  I would rather pay her than a stranger and from what I have read the IRS appears to be more interested in saying who cannot be an intermediary.  The "qualified" doesn't mean certified or trained, it means "not interested party" so a "no incentive to cheat the government out of taxes" type of intermediary.  I am sure my friend wants me to pay my fair share of taxes just like she pays hers.

Jean Bolger · Answer

Hmmm. You'd trust a neighbor who you think "wouldn't steal from you" more than a trained and experienced professional who has their professional reputation on the line. Why is that?

Who to use as a QI in a 1031 delayed exchange

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