To create a valid 1031 exchange, the taxpayer must assign his rights under the purchase and sale agreement to a “qualified intermediary“. In addition, the taxpayer must provide written notice of that assignment to all parties to the contract, and it is usually advisable to get the other parties to acknowledge they have received the notice. The assignment and notice are required in connection with both the sale of the relinquished property and the purchase of the replacement property.
In order to facilitate the assignment and notice, most tax advisors recommend adding language to the purchase and sale agreement that the taxpayer’s rights are assignable to 1031 Exchange Company and that the other parties to the contract will cooperate in the exchange.
The 1031 Exchange company does not require that you use any specific language in your contracts, but this article includes some sample language that is often used. This language may not be appropriate for your particular situation, so you should have your tax advisors review and revise it as necessary.
Sale of Relinquished Property
Buyer acknowledges that Seller intends to perform a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code. Buyer accordingly agrees to an assignment of the rights under this contract by the Seller to the exchange company, a qualified intermediary. Buyer agrees to cooperate in such exchange as long as it does not delay the closing or cause additional expense to Buyer.
Purchase of Replacement Property
Seller acknowledges that Buyer intends to perform a tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code. Seller accordingly agrees to an assignment of the rights under this contract by the Buyer to the exchange company, a qualified intermediary. Seller agrees to cooperate in such exchange as long as it does not delay the closing or cause additional expense to Seller.
We look forward to working with you and are here to help you have a successful exchange. If you need assistance with finding a reputable exchange company and qualified intermediary, we have a few that we would highly recommend.
Special Thanks to our two favorite 1031 Exchange Companies for providing the above information. Information is deemed reliable but subject to change as IRS regulations change. Please visit their websites for more detailed information.