Recently, we had a client who was working on writing a Purchase Agreement for a piece of real estate and they wanted to know who to enter as the buyer for 1031 exchange purposes. Also, the PA stipulated that an initial deposit was to be submitted within a few days of an accepted offer - where should this payment come from?
Shout it From the Mountaintops
Typically, the taxpayer/exchangor conducting the exchange enters into the Replacement Property purchase agreement in the same way that he/she owned the Relinquished Property and includes a 1031 cooperation clause in the purchase agreement.
It is a very prudent practice to ‘shout it from the mountaintops’ at every juncture that you intend to conduct a 1031 exchange. That way if there is ever a misstep, mistake or problem, everyone knows what you are trying to accomplish, and will give you the benefit of their understanding.
Here is some sample text that you may use or adapt for your purchase agreements:
When Buying: (Replacement Property)
The Seller herein acknowledges that it is the intention of the Buyer to complete an IRC Section 1031 Tax-Deferred Exchange and that the Buyer's rights under this Purchase Agreement shall be assigned to CPEC1031, for the purpose of completing such exchange. However, any warranties that may be expressed in this contract shall remain and be enforceable between the parties executing this document. Seller agrees to cooperate with the Buyer and/or its assigns in a manner necessary to complete said exchange at no additional cost or liability. This Purchase Agreement is part of an integrated, interdependent, mutual and reciprocal plan intended to effectuate an exchange by Buyer of a like-kind real properties pursuant to and in accordance with the provisions of Section 1031 of the Internal Revenue Code. The Seller shall execute and provide to Buyer prior to closing, an acknowledgement, that Seller has received written notice of the assignment of the Buyer’s rights under this Purchase Agreement to CPEC1031.
Contact a 1031 Exchange Professional
1031 exchanges of real estate are a great way to defer capital gains taxes. It’s important to ensure that you meet the requirements set out in IRC section 1031, however. The best way to ensure that is to work with a qualified intermediary who knows the process and can help advise you every step of the way. At CPEC1031 we have over two decades of experience facilitating exchanges of all shapes and sizes. Let us put our experience to work on your next 1031 exchange!
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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