Escrow & Title
In a Washington 1031 exchange transaction, why must a qualified intermediary (QI) be used?
ATo satisfy Washington state escrow licensing requirements
BTo prevent the taxpayer from having actual or constructive receipt of the exchange proceeds, which would disqualify the tax deferral✓ Correct
CTo represent both buyer and seller at closing
DBecause the IRS requires QIs to hold funds for a minimum of 1 year
Explanation
In a 1031 exchange, the taxpayer cannot touch or control the sale proceeds during the exchange period (180 days). A qualified intermediary (accommodator) holds the proceeds and directs them to the replacement property purchase, preventing constructive receipt that would trigger taxable gain.
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