Coordinating Your 1031 Advisor Team: CPA, QI, Attorney and DST Broker

The rule that separates the roles: your own CPA cannot hold your exchange funds

Reg. §1.1031(k)-1(k)(2) treats "a person who has acted as the taxpayer's employee, attorney, accountant, investment banker or broker, or real estate agent or broker within the 2-year period ending on the date of the transfer of the first of the relinquished properties" as your agent, and an agent cannot be a qualified intermediary.

The regulation's own Example 1 is unambiguous: an accountant who did your returns is disqualified, and the exchange fails the safe harbour. The narrow carve-out is for services "with respect to exchanges of property intended to qualify for nonrecognition of gain or loss under section 1031," plus routine escrow, title and trust services by an institution.

That is why this is a four-seat table rather than one trusted adviser. What a qualified intermediary is covers the role itself.

The intermediary holds your money under a contract, not under a licence

There is no federal registration, examination or capital requirement to act as a qualified intermediary. Washington State forces the point into writing: RCW 19.310.040 requires the facilitator to disclose, conspicuously, that "Exchange facilitation services are not regulated by any agency of the state of Washington or of the United States government."

The same statute gives the two structures worth insisting on anywhere: a fidelity bond of at least $1,000,000, or all exchange funds in a qualified escrow or qualified trust under Reg. §1.1031(k)-1(g)(3) where withdrawals require the client to independently authenticate the transaction.

The Federation of Exchange Accommodators adds the questions to ask any firm: are funds segregated and identified by your name and taxpayer identification number, how many signatures release them, are employees background checked, and what are the actual dollar limits of the errors and omissions cover and the fidelity bond.

Who is allowed to recommend the replacement, and under which standard

A qualified intermediary documents an exchange; it does not tell you what to buy, and asking it to blurs the line the regulation draws. DST and other fractional interests are private securities, so the recommendation comes from a registered representative of a broker-dealer or from an investment adviser.

For a broker-dealer that recommendation is governed by Regulation Best Interest, 17 CFR 240.15l-1, which requires acting "in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker, dealer" ahead of yours, and requires written disclosure of all material conflicts.

There is also an eligibility gate: Rule 501(a) limits these offerings to accredited investors — $200,000 of individual income, $300,000 joint, or $1,000,000 of net worth excluding your primary residence, or a Series 7, 65 or 82 licence. Breakwater Exchange operates within a regulated broker-dealer framework and is licensed in all 50 states; choosing a 1031 advisor covers what to look for more broadly.

One page that says who owns each number, so nothing is computed twice or not at all

Most failures on large exchanges are handoff failures, not technical ones: everybody assumed somebody else had the basis figure or the entity name. Write the split down before the listing goes live and send it to all four.

None of the four gives personalised tax advice for the others' work; confirm the rules that apply to you with your own CPA or attorney.

• CPA: adjusted basis, the four tax layers, suspended passive losses, the state filing, the extension decision and Form 8824.
• Qualified intermediary: exchange agreement, assignment of the sale contract, receipt and custody of funds, the day 45 and day 180 dates, and the identification notice file.
• Attorney: title vesting, the same-taxpayer question, entity or trust restructuring, contract language and the estate consequences.
• Broker-dealer or adviser: the replacement recommendation, sponsor and offering diligence, sizing across trusts, and written conflict disclosure.
• You: the decision, the deadlines and the single shared document everyone reads.

The engagement sequence, from thinking about selling to filing the return

Order matters more than speed. Two of these steps — vesting and the intermediary appointment — cannot be fixed after closing, and one of them, the identification, cannot be fixed after day 45.

Dates below assume a straightforward forward exchange; the pre-sale checklist expands the first three steps.

• Before listing: CPA computes the gain and the tax; attorney confirms who the taxpayer is on title; you decide whether an exchange is the plan.
• At the listing: intermediary selected and vetted on the fund-safety questions above; cooperation language added to the sale contract.
• Under contract: intermediary prepares the exchange agreement and assignment; the broker-dealer starts building the replacement list; the lender question is asked if debt must be replaced.
• Closing: the intermediary, not the title company, receives the proceeds; the CPA is told the exact transfer date that starts both clocks.
• Days 1–45: candidates narrowed, diligence completed, identification signed and delivered before midnight on day 45, with a copy to the CPA.
• Days 46–180: closings sequenced; any shortfall in value, equity or debt flagged early so a smaller trust interest can absorb it.
• Filing season: extension filed if needed, Form 8824 prepared, and the replacement basis recorded for the next exchange — see what to do after closing.

Five compensation questions that surface the conflicts in one conversation

Everyone at the table is paid, and the structures differ enough that the answers change the advice you get. Ask all five of each professional, in writing.

The point is not to find someone unpaid; it is to know which incentive sits behind each recommendation.

• How exactly are you paid on this transaction — flat fee, hourly, commission from the sponsor, or a percentage of the amount invested?
• Does anyone pay you for the referral of this client, and does anyone in your firm receive it?
• Do you keep the interest earned on my exchange funds, and at what rate are the funds held? Exeter's published explanation notes that most intermediary income comes from that interest.
• Which offerings are you not able to show me, and why — selling agreements, platform limits or firm approval?
• Where is the written disclosure of the above, and is it the Form CRS, the private placement memorandum, or an engagement letter?