Real Estate Tax Calc
Why you can't touch the cash
To defer tax in a 1031, you can't take "constructive receipt" of the sale proceeds. A qualified intermediary (QI) holds the funds between the sale and the purchase.
What the QI does
The QI prepares the exchange documents, holds the proceeds in a separate account, and disburses them to buy the replacement property — keeping the exchange compliant.
Choose carefully
QIs aren't federally licensed, so vet for bonding, segregated accounts, and track record. Your funds sit with them during the exchange window.
How the money actually flows
The QI's role is built on a set of documents signed before your relinquished property closes. You sign an exchange agreement with the QI and an assignment of your rights in the sale contract to the QI. At closing, the buyer's funds go to the QI — not to you — and title deeds directly from you to the buyer (a shortcut the regulations expressly permit, so the QI never has to appear in the chain of title).
When you find your replacement property, the process reverses: you assign your rights in the purchase contract to the QI, the QI uses the parked funds to pay the seller, and the seller deeds the property directly to you. Because you never hold the cash, you avoid constructive receipt and the exchange stays intact under Treasury Regulation 1.1031(k)-1(g)(4), the "qualified intermediary safe harbor."
Who cannot serve as your QI (disqualified persons)
The regulations bar a disqualified person from acting as your intermediary. That includes anyone who is your agent — or who has been your employee, attorney, accountant, investment banker, real estate agent, or broker — at any time during the two years before the sale. It also includes close family members (spouse, parents, children, siblings) and entities you control.
This trips up investors who want to save money by using their own CPA or closing attorney. If that person provided you routine services in the prior two years, they are disqualified, and using them can invalidate the entire exchange. A QI must be a genuinely independent third party in the business of facilitating exchanges.
Where your money sits — and the (g)(6) limits
Good QIs hold exchange funds in a segregated, qualified escrow or qualified trust account rather than commingling them with operating cash. Ask whether the account is in your name or the QI's, whether it requires your countersignature to move funds, and how it is insured.
During the exchange, the regulations (the "(g)(6) limitations") sharply restrict your ability to receive, pledge, borrow, or otherwise benefit from the parked money. You generally cannot get the funds back until the exchange is complete, the 45-day identification period lapses with nothing identified, or the 180-day period ends. This is the mechanism that keeps the deferral valid — but it also means picking a solvent, trustworthy QI is not optional.
Fees and interest on your funds
QI fees for a standard forward exchange are usually modest — often a few hundred to around a thousand dollars per exchange, plus small per-property charges. The bigger economic question is who keeps the interest earned on your parked funds. Some QIs pay you the interest (which is taxable ordinary income to you, reported on a 1099-INT), while others keep some or all of it as part of their compensation. Read the exchange agreement's interest and fee provisions before you sign.
The real risk: QI insolvency or fraud
Because QIs are lightly regulated, the biggest danger is that the intermediary fails or misappropriates funds while holding your money — as happened in several high-profile collapses during the 2008 financial crisis. If a QI goes under with your proceeds, you can lose the cash and still owe the deferred tax.
Protect yourself: insist on segregated qualified escrow/trust accounts, require dual authorization for disbursements, confirm fidelity bond and errors-and-omissions coverage, check the firm's financial strength and how long it has operated, and consider members of the Federation of Exchange Accommodators (FEA), which imposes a code of ethics. A few states (California, Nevada, Colorado, Idaho, Virginia, Washington, Maine) regulate QIs and require bonding or minimum net worth.
A start-to-finish timeline with a QI
Here is how a routine delayed exchange runs. Before closing, you retain the QI and sign the exchange agreement; the QI is assigned your rights in the sale contract. At the sale closing, the buyer wires funds to the QI's qualified escrow account and you deed directly to the buyer — you never touch the money. Within 45 days, you send the QI a signed identification notice listing your replacement candidates. When you're ready to buy (and no later than day 180), you assign the purchase contract to the QI, the QI wires the parked funds to the closing, and the seller deeds the replacement to you. The QI then issues you an accounting and the 1099 for any interest. Every dollar moves through the QI, which is exactly what keeps constructive receipt off the table.
Questions to ask before you hire one
Treat the selection like hiring a bank to hold a large deposit. Ask: Are exchange funds held in segregated qualified escrow or trust accounts, or commingled? Is my written authorization required to release funds? What are your fidelity bond and E&O limits? How long have you been in business, and how many exchanges do you handle annually? Who keeps the interest, and at what rate? Do you carry cyber-fraud protection against wire-fraud schemes (a growing threat in real estate closings)? Are you an FEA member bound by its code of ethics? A reputable QI answers all of these in writing without hesitation.
The QI is a facilitator, not an advisor
Understand the boundaries of the role. A QI executes the exchange mechanics and safeguards funds — it does not give you legal or tax advice, choose your replacement property, or guarantee the exchange qualifies. Those judgments belong to your CPA and attorney, who (as noted above) can advise you precisely because they aren't holding the money. Build a small team: a QI for the mechanics, a tax advisor for the strategy, and a closing agent who has handled exchanges before. Coordinating the three from the outset is the single best predictor of a clean, fully deferred exchange.
Guarding against wire fraud
Real estate closings are a favorite target for wire-fraud criminals, and exchange funds moving between the QI, title company, and closings are exposed. Scammers spoof email addresses and send fake wiring instructions at the last minute. Protect yourself: verify all wire instructions by phone using a number you already have on file — never a number from an email — before sending or authorizing any transfer. Ask your QI what fraud controls it uses (callback verification, dual authorization, dedicated fraud insurance). A single misdirected wire of exchange proceeds can be catastrophic and is often unrecoverable, so treat every change in wiring instructions as suspect until independently confirmed.
How QI costs compare across exchange types
Fees scale with complexity. A straightforward delayed (forward) exchange is the cheapest — often a few hundred to about a thousand dollars, plus small per-property charges. A reverse exchange costs substantially more (frequently several thousand) because the QI or an affiliated entity must form and operate an exchange accommodation titleholder to park a property. An improvement/build-to-suit exchange is pricier still, since the accommodator holds title during construction and administers draws. When you compare quotes, make sure you're comparing the same exchange type and the same scope — including whether interest, per-property fees, and any parking-entity costs are bundled or billed separately.
Timing: engage the QI before you close
The one deadline that has no cure is the sale closing itself. The QI must be retained and the exchange documents signed before title transfers on your relinquished property. If you close the sale and receive the funds first — even into your own escrow for a day — you've had constructive receipt and the exchange is dead; no QI can retroactively fix it. Practically, reach out to a QI as soon as you have a sale under contract, ideally a week or more before closing, so the exchange agreement, assignment, and escrow account are all in place when the closing occurs.
What the QI cannot do with your money
The regulations don't just require a QI to hold the funds — they restrict what you can do with those funds while the exchange is open. You generally can't receive, borrow against, or pledge the parked money, and you can't direct the QI to use it for anything other than acquiring like-kind replacement property and paying qualifying exchange expenses. There are narrow timing exceptions (for example, funds can be released at the end of the identification or exchange period when no property is or can be acquired). If you need liquidity from the sale, that portion should simply be taken as (taxable) boot at closing rather than routed through the QI and pulled back later, which can taint the whole exchange.
Frequently asked questions
Do I need a qualified intermediary for a 1031?
Yes. You cannot receive the sale proceeds directly; a QI must hold them.
Is a QI regulated?
Not federally licensed in most states — vet for bonding, insurance, and segregated accounts. A handful of states (e.g., California, Nevada, Colorado) impose bonding or net-worth rules.
Can my CPA, attorney, or real estate agent be my QI?
Generally no. Anyone who acted as your agent, employee, attorney, accountant, or broker in the two years before the sale is a "disqualified person" and cannot serve as QI.
Who keeps the interest earned on my exchange funds?
It depends on the agreement. Some QIs pay you the interest (taxable to you); others retain it as compensation. Confirm this in writing before signing.
How much does a QI charge?
A typical forward exchange runs from a few hundred dollars up to around a thousand, plus small per-property fees. Reverse and improvement exchanges cost considerably more.
Sources
Educational information and estimates only. Not tax advice. Tax rules change and vary by situation; consult a qualified tax professional before acting.