When you go to an auction and sell your 1031 relinquished property it can be challenging because the treasury regulations say that you have to give written notice to the other parties to your sale contract.
No Direct Contact with the Buyer
In an auction sometimes you don't have that direct interconnection with the buyer of your property because it happens so fast and it happens through an auctioneer.
You don't have direct contact with the buyer, but the treasury regulations say that you need to give written notice to the other party to a contract. So oftentimes we suggest that when you put the property up for sale at the auction that you specify that it is part of a 1031 exchange and that your interest in it will be a assigned to the qualified intermediary. That also can be contained in any brochures or flyers that are used to advertise the auction properties.
Tips for Auctioning 1031 Property
If you really want to be safe and secure the best way to evidence that you gave the proper and requisite notices to the buyer is to find the buyer and ask them to sign a notice that states that you're doing a 1031 exchange, you have assigned your interest in this property and the sale contract to the intermediary.
That's the best way to button up your exchange and verify that you gave written notice, and if you're ever audited now you've got written proof to show that you complied with that requirement. But in a crazy auction environment where deals are happening quickly and property is moving fast it can be challenging, and people do struggle to find a way to give the requisite notice to the other parties.
- 1031 Hotline: If you have questions about 1031 exchanges and auctioned property, feel free to call me at 612-643-1031.
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