If you spend time in commercial real estate, investment property, or the passive real estate investment space, you’ve probably heard many professionals say: “We do 1031 exchanges.”
The result is predictable: investors often walk away unclear about who is actually responsible for facilitating a 1031 exchange and what role each professional plays.
At 1031 CORP., an independent Qualified Intermediary (QI), we regularly hear investors say:
This confusion has grown as more companies weave “1031 exchange” into their branding without clearly explaining what they do—and what they don’t do—in the transaction.
Key takeaway: A 1031 exchange is a tax-deferral strategy governed by IRC Section 1031 and must be facilitated by an independent and objective Qualified Intermediary (QI), regardless of the replacement property you choose, including a DST.
Section 1031 of the Internal Revenue Code does not create separate categories of exchanges. There aren’t different rulebooks for:
The same 1031 timelines and requirements apply no matter:
In a delayed exchange, the QI is the party that facilitates the exchange under the Treasury Regulations. Practically speaking, the QI is the independent third party responsible for:
Without a properly structured exchange facilitated by an independent QI, most delayed exchanges—where the client sells first and buys second—will not qualify for tax deferral under Section 1031.
A successful 1031 exchange usually involves a team. Each professional is important, but each has a distinct job, and only the QI facilitates the exchange.
The exchanger’s CPA or tax advisor evaluates:
The QI does not provide tax advice, and the exchanger’s tax advisor cannot serve as the QI.
The exchanger’s attorney may assist with:
The QI does not provide legal advice, and the exchanger’s legal advisor cannot facilitate a 1031 exchange.
The commercial broker or residential real estate agent helps:
The exchanger’s real estate broker or agent cannot serve as the QI.
DST professionals help investors evaluate DST offerings as potential replacement property.
Remember, the DST is the replacement property. A DST sponsor or broker is not a QI and cannot facilitate the exchange. A DST is simply one form of replacement property that may qualify under Section 1031. Choosing this passive investment doesn’t create a different type of exchange.
Much of the confusion comes from marketing. Some advertise or emphasize “1031 exchanges” even though their primary business is actually:
This can make it hard for investors to tell:
As a result, investors often believe:
Those misunderstandings create avoidable risk.
This is one of the most misunderstood parts of the 1031 exchange landscape.
Many investors assume that QIs are heavily regulated or licensed. In reality, in most states the barriers to entry are surprisingly low.
In many states:
That means almost anyone can technically open a company and market themselves as a 1031 exchange facilitator.
Treasury Regulations prohibit certain parties from serving as the exchanger’s QI. Generally, a “disqualified person” cannot act as the QI if they have served as the exchanger’s advisor or agent within the two-year period preceding the exchange:
The purpose of this rule is to ensure the QI remains independent and objective.
Independence issues don’t stop with direct involvement.
A disqualified person generally cannot own 10% or more of the Qualified Intermediary entity and still facilitate exchanges for that person’s clients.
For example:
The IRS intended the QI to function independently — not as an extension of the exchanger’s existing agent relationships.
Another topic worth understanding is referral fee arrangements between Qualified Intermediaries and disqualified parties. Many times over the years, 1031 CORP. has been asked if we pay referral fees.
Referral fees are not automatically prohibited, but certain compensation structures may raise questions about a QI’s independence.
For example:
The Treasury Regulations do not specifically address every referral fee structure. However, if a compensation arrangement suggests the disqualified party has substantial participation in the economics of the exchange facilitation business, which could invite scrutiny regarding whether the QI is truly independent.
These arrangements raise important questions:
These are not issues exchangers should discover after an IRS audit.
Because barriers to entry are low, investors should carefully evaluate the experience and infrastructure of the QI facilitating their exchange.
A common but incomplete question is: “How long have you been in the 1031 industry?” It can be misleading because someone may have been adjacent to the industry for years without directly facilitating exchanges.
Someone may have years of experience:
This does not mean they have the substantial experience needed to facilitate exchanges as a QI. A far better question is: “How much experience do you have directly facilitating 1031 exchanges?”
Investors should also ask:
Not all QIs possess the same level of experience, infrastructure, or expertise.
The 1031 exchange industry functions best when:
Each professional serves an important purpose. But clarity matters. Investors deserve to understand:
At the end of the day, a 1031 exchange is too important and often involves too much money to risk confusion about roles, responsibilities, or independence requirements.
Choosing the right Qualified Intermediary is not simply an administrative decision. It is a risk management decision.
In the end, it is one of the most important decisions an exchanger can make.