How to Deal with Auctioned Property in a 1031 Exchange

In some 1031 exchanges, the taxpayer conducting the exchange may wish to sell the relinquished property at auction. This is possible, but there are several things to keep in mind when conducting exchanges at an auction. This article is all about 1031 exchanges involving auctioned property. We’ll explain all the basic details you need to be aware of when exchanging auctioned property.

Selling at Auction

The first thing you want to do at the auction is to notify the auctioneer that the property is being sold as part of a 1031 transaction. The auctioneer can then pass that information along to the bidders and inform them that whoever wins will need to sign an acknowledgment stating the seller has assigned their rights in the purchase agreement to the qualified intermediary. This is a relatively simple request, but it is essential that you have the cooperation of the person that wins the auction in order to complete a successful 1031 exchange.

Buying at Auction

If you are on the other side of the transaction (you’re purchasing replacement property at auction) there are some additional items to keep in mind. Again, you should communicate with the auctioneer your intention to purchase the property as part of a 1031 transaction. This will likely require you to include a 1031 cooperation clause in the purchase agreement to ensure the seller’s cooperation.

1031 Exchange Company in Minneapolis, MN

At CPEC1031, LLC, our qualified intermediaries have over two decades of experience facilitating real property exchanges for clients throughout the state of Minnesota. Our intermediaries make the 1031 exchange process easy for you by advising you and preparing all of your documents. If you are looking to save taxes on your next real estate sale, a qualified intermediary can help you. Contact our 1031 exchange professionals today to discuss the details of your exchange. Our primary office is located in downtown Minneapolis, but we work with clients throughout the country.

• 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Auctioning 1031 Exchange Property

Sometimes in a 1031 exchange, tax payers want to sell their old relinquished property at an auction. This happens most often in the realm of personal property like business equipment or muscle cars held for investment purposes. The taxpayer takes the property to an auction, puts it up on the auction block and hopes it sells. There are a few things to keep in mind when you’re buying or selling 1031 property at an auction.

Notify the Auctioneer

If you’re selling property at an auction it’s a good idea to have the auctioneer notify the bidders that this sale is part of a 1031 exchange and that whomever the winner is, they will have to sign an acknowledgement that states that the seller has assigned their rights in that purchase agreement to their QI (Qualified Intermediary). It’s a simple request, but you need to let the buyer know that they will need to cooperate with the 1031 exchange.

Buying Replacement Property at Auction

The same situation exists when you’re trying to buy your replacement property at an auction. You go to the action and tell the auctioneer that you’re doing a 1031 exchange and that you want the ability in your purchase agreement to assign it to your QI. So talk to the auction company and ask if you can include a 1031 cooperation clause in your purchase agreement (if you are the winner) so that you can elicit the seller’s cooperation. This helps evidence that you’ve satisfied the treasury regulations requirements for a 1031 exchange. In particular that you’ve assigned the contract to the intermediary and that you’ve given written notice to all the parties of the purchase agreement.

The problem with auctions is that you’re a person removed from actually dealing with the specific buyer or seller. So you need to have good and effective communication with the auction house so they can facilitate your request.

• Start Your Exchange: If you have questions about 1031 exchanges and auctions, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2016 Copyright Jeffrey R. Peterson All Rights Reserved