Auctioning 1031 Exchange Property

1031 exchange property at auction

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.

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

Defer the tax. Maximize your gain.

 

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