Is There a Difference Between a 1031 Exchange Intermediary and a 1031 Accommodator?

Conducting a like-kind exchange under Section 1031 of the Internal Revenue Code is a complex process that is subject to several strict requirements. Meeting these requirements is essential—as failing to do so can result in irrevocable loss of eligibility for indefinite tax deferral. In the vast majority of circumstances, this will involve working with a qualified third party that can help you maintain compliance. But, if you need to engage a third party, should you choose a 1031 exchange intermediary or a 1031 accommodator?

These are two different terms for the same thing—and, technically, the Internal Revenue Service (IRS) refers to these third parties as “qualified intermediaries,” or “QIs”. If you are contemplating a 1031 exchange, keep reading to learn when you need to engage a qualified intermediary and what an experienced QI can do to help:

Understanding the Role of a Qualified Intermediary in a 1031 Exchange

A qualified intermediary plays a multi-faceted role in facilitating a 1031 exchange. Under Section 1031, engaging a qualified intermediary is required when conducting a series of transactions rather than directly exchanging one property for another—and this covers the vast majority of exchanges. Most 1031 exchanges fall into one of two categories, both of which require the use of a qualified intermediary:

• Delayed Exchanges – A delayed exchange involves selling one property (the “relinquished property”) before buying another (the “replacement property”). This is the most common type of 1031 exchange.
• Reverse Exchanges – A reverse exchange involves acquiring a replacement property before selling the taxpayer’s relinquished property. While less common than delayed exchanges, reverse exchanges can be useful when a taxpayer identifies a desirable property early in the exchange process or plans to make substantial improvements to a replacement property before putting it into use.

While qualified intermediaries may offer different services, all should be able to assist in meeting the requirements for conducting a delayed or reverse exchange. With this in mind, the services a qualified intermediary may provide include:

Assisting with Satisfying the Timing Requirements Under Section 1031

Strict timing requirements apply to delayed and reverse exchanges under Section 1031. A qualified intermediary can explain the applicable timing requirements and assist taxpayers in ensuring they do not unknowingly or inadvertently run out of time to secure indefinite tax deferral.

Holding Sale Proceeds in Escrow or Establishing an Exchange Accommodation Titleholder (EAT)

To qualify for like-kind exchange treatment under Section 1031, a taxpayer must not directly receive the proceeds from the sale of a relinquished property in a delayed exchange. In this scenario, the proceeds must be held in escrow by a qualified intermediary.

In a reverse exchange, the taxpayer must not directly take title to the replacement property until the taxpayer’s relinquished property has been sold. This is achieved by establishing an Exchange Accommodation Titleholder (EAT) through a qualified intermediary.

Completing All Documentation Required to Conduct the 1031 Exchange

A qualified intermediary can also assist with completing all of the documentation required to conduct a 1031 exchange. This includes completing the documentation required for the exchange itself, as well as the documentation needed to demonstrate compliance with Section 1031 in the event of a future tax audit.

Facilitating the Transfer of Funds for Both Transactions Involved in the Exchange

In addition to holding the taxpayer’s sale proceeds in escrow during a delayed exchange, a qualified intermediary can also facilitate the transfer of funds for both transactions involved in the exchange. If necessary, a qualified intermediary can also assist with holding and transferring earnest money deposits (EMDs) and other contingency-related funds.

Complying with the Federal Filing Requirements

Finally, once a 1031 exchange is complete, a qualified intermediary can assist the taxpayer with meeting the applicable federal filing requirements. Most significantly, this includes IRS Form 8824 (Like-Kind Exchanges). To secure the indefinite tax deferral that is available under Section 1031, a taxpayer must properly file IRS Form 8824 for the tax year in which the taxpayer’s relinquished property is sold.

Schedule a Call with a Qualified 1031 Exchange Intermediary Today

At 1031 National Services, we assist taxpayers nationwide with conducting like-kind exchanges in compliance with Section 1031 of the Internal Revenue Code. If you would like to know more about our qualified intermediary services, we invite you to get in touch. To schedule a call with a qualified 1031 exchange intermediary, call us at 888-872-1031 or tell us how we can help online today.