qualified intermediary

Primary tabs

A qualified intermediary refers to a person who “[e]nters into a written agreement with the taxpayer . . . and, as required by the exchange agreement, acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer.” 26 C.F.R. § 1.1031(k)-1(g)(4)(iii)

Under 26 U.S. Code § 1031, property owners can defer their capital gains on taxable proceeds from the sale of their property if the proceeds are subsequently used to purchase property of like kind. However, property owners can only take advantage of this tax-deferral benefit if they do not receive the proceeds of the sale. In a 1031 exchange, property owners may use a qualified intermediary as a safe harbor to ensure they comply with the relevant tax code but must expressly agree to limit their “rights to receive, pledge, borrow or otherwise obtain benefits of money or other property held by the qualified intermediary.” § 1.1031(k)-1(g)(4)(ii).

For illustrative case law, see Teruya Bros., Ltd. v. C.I.R., 580 F.3d 1038 (9th Cir. 2009)

[Last updated in June of 2022 by the Wex Definitions Team]