Is a QI needed for a simultaneous, same-day exchange?

A true swap of deeds is an exchange on its own

Section 1031(a) applies to 'the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind'. If you and another owner trade properties, each signing a deed to the other at the same closing, the transfer is property for property and needs no third party.

Cash to even out values is boot, taxed to the extent of your gain, but it does not undo the exchange. Existing mortgages travel with each property, and the debt each of you is relieved of counts as money received unless it is offset by debt you take on or cash you pay, under Reg. Section 1.1031(d)-2.

The difficulty is practical: it is rare to find an owner who wants your property and owns the one you want.

Once a buyer pays cash, the question becomes who received the money

A sale to one party and a purchase from another is not a swap. Reg. Section 1.1031(k)-1(a) states that 'a sale of property followed by a purchase of property of a like kind does not qualify for nonrecognition', and paragraph (f)(2) treats you as having received money when it is 'credited to the taxpayer's account, set apart for the taxpayer, or otherwise made available' to you.

In a same-day closing, the buyer's funds sit in the closing agent's account and the replacement seller is paid from them. If those funds are held for you, with you free to direct them, the closing agent is acting as your agent and the transaction can look like a sale and a purchase, minutes apart.

Reg. Section 1.1031(b)-2 is the fix. In simultaneous transfers 'involving a qualified intermediary', the intermediary 'is not considered the agent of the taxpayer', and 'the transfer and receipt of property by the taxpayer is treated as an exchange.'

The documents are the same as a deferred exchange, signed before the closing

The intermediary must meet the definition in paragraph (g)(4)(iii): a written exchange agreement under which it acquires and transfers both properties. In practice you sign the agreement, assign the sale and purchase contracts to the intermediary, and notify every party in writing on or before the closing, as paragraph (g)(4)(v) requires.

That paperwork also protects you if the day goes wrong. If the purchase slips past the sale, you are in a deferred exchange, with a 45-day identification deadline and a 180-day closing deadline. An agreement already in place keeps the proceeds restricted; without one, the funds land in your name. What the intermediary needs to open the file is in what the QI needs to open my exchange.

A hypothetical: one table, two deals, one afternoon

Hypothetical facts: you sell a fourplex for $600,000 at 1 p.m. and buy a $650,000 duplex at 3 p.m. from a different seller, with the same title company closing both. With no intermediary, the title company's ledger shows $600,000 credited to you and then $600,000 debited to you for the purchase, and you add $50,000.

With an intermediary, the sale contract is assigned to it, the buyer's money is credited to the intermediary, and the intermediary pays the duplex seller under the assigned purchase contract. The money flow is identical, but the documents show the funds were never yours to direct. Run your own numbers with your CPA.

Where a DST fits, and the one step to take this week

If the same-day purchase is uncertain, identify a backup within 45 days of the sale. A Delaware Statutory Trust interest can close quickly once the subscription is accepted, which is the subject of how quickly a DST can close, and naming one on the identification notice keeps the exchange alive if the main purchase dies.

The step to take now is to sign the exchange agreement and get the assignment language into both contracts before either closing; see the exchange cooperation clause.