Definition
A qualified intermediary (QI) — also called an accommodator or exchange facilitator — is an independent third party that facilitates a 1031 exchange by holding the proceeds from the sale of the relinquished property and then using them to acquire the replacement property. Because the investor never takes actual or constructive receipt of the funds, the QI is what allows the transaction to satisfy the IRS safe harbor and preserve tax deferral.
How a Qualified Intermediary Works
The QI sits between the two sides of the exchange to keep the investor from touching the cash:
- Engaged before closing. The investor and QI sign an exchange agreement before the relinquished property sale closes.
- Holds the proceeds. At closing, the sale funds go to the QI rather than to the investor, avoiding constructive receipt.
- Acquires replacement property. Within the 180-day window, the QI uses the held funds to purchase the identified replacement property on the investor’s behalf.
- Documents the exchange. The QI prepares the assignment and exchange paperwork needed to support the transaction.
Why the Independence Rule Matters
The QI must be independent — it cannot be a “disqualified person.” That generally excludes anyone who acted as the investor’s agent (such as their attorney, CPA, or broker) within the prior two years. This independence requirement is why an investor’s own advisors typically cannot serve as the QI. Getting this wrong, or taking receipt of the funds, can cause the entire exchange to fail and trigger the deferred tax — including any boot and depreciation recapture.
Key Characteristics
| Feature | Qualified Intermediary |
|---|---|
| Also called | Accommodator, exchange facilitator |
| Core role | Holds proceeds; avoids constructive receipt |
| Timing | Engaged before relinquished sale closes |
| Independence | Cannot be a disqualified person |
| Federal license | No comprehensive federal licensing regime |
| Key diligence | Fund security, bonding, internal controls |
Important Considerations
Because a QI holds substantial client funds, the security of those funds is a real concern — there is no comprehensive federal licensing scheme, and protections vary by state. Investors should evaluate a QI’s controls, insurance, and segregation of funds. Engaging the QI too late, or selecting a disqualified person, can void the deferral. As always, real estate carries market, tenant, and financing risk, including possible loss of principal. Coordinate QI selection with your CPA and a qualified advisor.
Related Terms
- 1031 Exchange — the transaction a QI facilitates
- Replacement Property — what the QI acquires with held proceeds
- Boot — taxable value that can arise if funds are mishandled
This definition is educational only and is not investment, tax, or legal advice. Qualified intermediary regulation varies by state, and real estate investments carry risk including possible loss of principal. Confirm current rules and your specific treatment with your CPA and a qualified advisor.
See How a 1031 Exchange Is Structured
Estimate the capital gains you could defer by reinvesting into like-kind replacement property.