If you are looking for property investment in Massachusetts, the chances are you taking the support of Section 1031 to defer the taxes. As per the regulation of IRS, you need a qualified intermediary (QI) to execute the process.
There isnt any federal authority or national standard that keeps a check on qualified intermediaries. Only in some states of the US, the QI has to be insured or licensed. Otherwise, any individual can become a QI without any restriction. This shows that you must be careful while choosing a QI for the exchange process.
Role of a QI
A qualified intermediary is responsible for:
- Making sure that exchange complies with the rules of the IRS
- Coordinating the documents needed for the exchange
- Holding the proceeds of investor from the sale of property until it is needed again for purchasing a replacement property
Some qualified intermediaries are not competent enough to manage the exchange process. Several QIs declare bankruptcy that results in losses for the investor.
Risks associated with QIs
If you an intermediary is unable to perform the duties, then:
- The chances are that your money might be stolen.
- IRS might disqualify your exchange, and you have to pay taxes
- In a federal audit, you have to in additional resources to defend your position
Final Thoughts
Though these incidents are rare, it is still a wise idea to do some research before choosing a qualified intermediary. Check where your funds will be held by the investor. Also, make sure the QI is in business for a long duration.
You can take the support of FAI Exchange in finding a trusted QI for your exchange process. Being a real estate expert, the company helps finding investment property that can qualify for 1031 exchange.
Learn about the other services of this company here.