Why Your 1031 Intermediary Choice Matters
If you are considering a 1031 tax deferred exchange to defer taxes when you sell your investment property, a “1031 Qualified Intermediary” (QI) is generally required. Prior to the transfer of the old investment property, the services of a QI are retained to prepare the necessary documentation, securely hold your exchange funds and acquire your new investment property.
However, since almost anyone can act as a 1031 Qualified Intermediary, here are some important factors to consider:
- 1031 Intermediaries are not regulated by the federal government and most states: This means that there are no uniform regulations or laws concerning how your funds are deposited, invested or secured by QIs. Many years ago, some investors lost their exchange funds when they were either stolen or poorly invested by unscrupulous QIs. In many instances these losses could have been avoided by conducting basic due diligence prior to selecting the QI.
- Safety and Security for the transfer of your funds: With cybercrime and fraud on the rise, bank wire transfers, particularly regarding real estate transactions, have been increasingly targeted and are amongst the most costly types of cybercrime today. Selecting a QI that has a secure computer network and updates its safety precautions for holding and transferring funds would be a wise choice.
- Financial Assurances for your funds: Since 1031 Intermediaries are not regulated by the federal government or by most states, they are not uniformly required to provide insurance or other protections for your exchange funds. Therefore, if your funds are lost or stolen by a QI that doesn’t provide adequate protections, the loss is borne by you.
- Expertise and Strength: Similar to the lack of uniform regulation, QIs are not licensed by the federal government or by most states. This means that just about anyone can act as a QI without any training or education regarding 1031 tax deferred transactions.
- Reputation: Although QIs are not regulated by the federal government, there is an industry trade association, Federation of Exchange Accommodators (FEA). Many reputable and stable QIs are members of this organization.
Questions to address in your QI vetting process.
So how do you choose? With so much at stake, your decision making process should not be taken lightly. You may want to ask additional questions like these before choosing your QI.
IPX1031. The best choice for your 1031.
IPX1031 is the largest and one of the oldest Qualified Intermediaries in the United States. As a wholly owned subsidiary of Fidelity National Financial (NYSE:FNF), a Fortune 300 company, IPX1031 provides industry leading security for your exchange funds as well as considerable expertise and experience in facilitating all types of 1031 Exchanges. Taxpayers’ funds are held in segregated accounts using the Exchanger’s taxpayer identification number. Our nationwide staff, which includes industry experts, veteran attorneys and accountants, are available to help you and your legal and tax advisors. For additional information regarding IPX1031 and how to choose the best QI for your upcoming transaction, please review:
1031 Due Diligence – Questions to ask a QI
Safety and Security for Exchangers
Are Cybercriminals Targeting Your 1031 Funds?
The Role of the Qualified Intermediary
Opportunities of the 1031 Exchange
Top 5 Challenges to Avoid in a 1031 Exchange