How to Add a 1031 Exchange Amendment to a Purchase Agreement

If you forget to add 1031 exchange language into your final purchase agreement, can you still do an amendment, or do you need to rewrite the counteroffer and have it resigned?

Adding an Amendment to the Purchase Agreement

Yes. You can add the text in an amendment to the PA, it is not a problem. 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 Selling Relinquished Property

The Buyer herein acknowledges that it is the intention of the Seller to conduct an IRC Section 1031 Tax-Deferred Exchange and that the Seller's rights under this Purchase Agreement shall be assigned to CPEC1031, to facilitate such exchange. However, any warranties that may be expressed in this contract shall remain and be enforceable between the parties executing this document.   Buyer agrees to cooperate with the Seller and/or its assigns in a manner necessary to enable the Seller to initiate 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 Seller of a like-kind real properties pursuant to and in accordance with the provisions of Section 1031 of the Internal Revenue Code. The Buyer shall execute and provide to Seller prior to closing, an acknowledgement, that Buyer has received written notice of the assignment of the Seller’s rights under this Purchase Agreement to CPEC1031.

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 Qualified Intermediary

To get your 1031 exchange of real estate started today, contact an experienced qualified intermediary! CPEC1031 has over twenty years of experience facilitating 1031 exchanges. Let us help you through your next 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.

© 2022 Copyright Jeffrey R. Peterson All Rights Reserved

What to do if a Party Won’t Sign your 1031 Exchange Purchase Agreement

Sometimes the other parties to a purchase and sale agreement refuse to cooperate with your 1031 exchange, and will not sign the standard 1031 acknowledgement that they have received written notice regarding your nominal assignment of rights to your qualified intermediary. What is there to do in this situation?

Steps to Take

Here are the steps to take if you find yourself in this situation:

• Provide the other parties written notice bay fax, e-mail, in-person delivery (or the method specified in the purchase contract for providing notices).

• Save the proof that it was sent (on or before the end of the day of closing).

The treasury regulations say you must give them written notice of the assignment. While it is prudent to get back a signed acknowledgement (to have proof that you complied in giving the requisite notice), you don’t have to get back signed proof, and you can complete the exchange with a fax confirmation, e-mail receipt or other documentation.

1031 Exchange Pro Tip

Another, tip is to let the uncooperative party know that the deeds are still running the same way (from the seller to the buyer) and that the “assignment” is just for 1031 tax purposes, but the deal is still with the original parties.

Qualified Intermediaries in Minnesota

The qualified intermediaries at CPEC1031, LLC have over twenty years of experience facilitating like-kind exchanges of real property throughout the country. We can handle all of your 1031 exchange documents, answer all of your questions, and help you find replacement property. Contact us today at our downtown Minneapolis office to learn more about our wide range of services and see how we can help you with your 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.

© 2021 Copyright Jeffrey R. Peterson All Rights Reserved

Is it Necessary to Assign the Purchase Agreement to Your Qualified Intermediary?

Many people ask “Why do I have to assign my purchase agreement to my Qualified Intermediary in a 1031 exchange?” And furthermore, “Why do I have to give notice to all of the other persons involved in the purchase agreement that I am assigning my contract to my intermediary.” It seems intrusive to have to give everyone notice that you are doing an exchange. Why is it anyone’s business?

Old School Requirements

Let’s go back in time before the current treasury regulations were in place. Back then we would actually deed or transfer our property to the qualified intermediary. The Intermediary acted as a straw man, so that they became the seller of the relinquished property and the purchaser of the replacement property. In other words, your Intermediary actually went into title and then participated in the transfer or the purchase of the property.

Modern 1031 Tax Techniques Allow Mere Assignment

Today, qualified intermediaries do not have to legally take title. We can accomplish the same function by simply assigning to the Intermediary our rights in the relinquished property purchase agreement, or our rights in the replacement property purchase agreement. That is deemed to be the same as if the Intermediary actually took our property from us, or received the replacement property for our benefit.

Faster, Cheaper Direct Deeding for 1031 Exchanges

The benefit here is that we do not have to deed a property. We do not have to pay for extra recording fees, and we do not have to go through all of that extra hassle of actually deeding the intermediary into the chain of title. However, the treasury regulations say that if you are going to have direct deeding, (that is, the exchangor deeds the relinquished property to the buyer, and the seller of the replacement property deeds the replacement property to the exchangor) then we have to give written notice of this assignment to the Intermediary to all of the other parties to the purchase agreement. Remember, in old common law, an assignment was never considered effective unless all of the parties to that agreement were given notice.

Why Would the IRS Adopt an Old Common Law Assignment Rule?

So why would the treasury regulations have adopted this old rule? I think it is to prevent unscrupulous folks from fabricating a 1031 exchange. They can’t say, “You know that deal that we did back last year? That was a 1031 exchange.” The way to catch them in that lie would be to say, “Well, show us where you gave written notice to the other parties of the purchase agreement." If they can’t show, well then maybe it wasn’t a 1031 from the outset.

• 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

1031 Exchange Purchase Agreement with Contingency

A client recently came to us with the following 1031 situation: The client was putting in a purchase agreement on a rental property with a contingency for a 1031 exchange. The selling property closes on February 21. 2020. So this offer for an "identification" property will occur before the 45-day ID period. Would this mess up the ID period?  Should the client include all of this information on the purchase agreement?

45 Day Identification Period

In a 1031 exchange, you are allowed to close on replacement property within the 45-day ID period. Anything that you close on within the 45-day identification period is “deemed” identified by the IRS; so you may not need to make a separate written identification/designation if you do in fact acquire it (through your qualified intermediary) within the 45-day identification period.

As your qualified intermediary, we will have some forms and documents for both the relinquished property and replacement property closings to connect the two transactions together as a 1031 exchange.

Get Help with Your 1031 Exchange

Get the help you need with your 1031 exchange today by contacting CPEC1031. Our team of qualified intermediaries are ready and waiting to help you through all the stages of the 1031 process. We have over twenty years of experience facilitating 1031 exchanges and can put that experience to work on your next exchange. Contact us today to learn more about how we facilitate exchanges. You can find us at our downtown Minneapolis offices, or at one of our satellite offices around the United States.

• 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.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Sample Text for 1031 Exchange Sale & Purchase Agreements

In a 1031 exchange, 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 sale and purchase agreements:

When Selling Relinquished Property

The Buyer herein acknowledges that it is the intention of the Seller to conduct an IRC Section 1031 Tax-Deferred Exchange and that the Seller's rights under this Purchase Agreement shall be assigned to CPEC1031, to facilitate such exchange. However, any warranties that may be expressed in this contract shall remain and be enforceable between the parties executing this document. Buyer agrees to cooperate with the Seller and/or its assigns in a manner necessary to enable the Seller to initiate 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 Seller of a like-kind real properties pursuant to and in accordance with the provisions of Section 1031 of the Internal Revenue Code. The Buyer shall execute and provide to Seller prior to closing, an acknowledgement, that Buyer has received written notice of the assignment of the Seller’s rights under this Purchase Agreement to CPEC1031.

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.

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

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved