When you do a 1031 exchange, it’s prudent to put a clause in the contract for the sale of your relinquished property notifying the buyer and any other parties to the agreement that you’re doing a 1031 exchange. This should be affirmatively stated in the agreement.
The treasury regulations assume that the qualified intermediary is going to actually take title to your property before selling it to the buyer, or is going to synthetically receive your property before selling it to the buyer. Synthetically receiving the property means that they are taking an assignment of the seller’s rights in the contract and then directing the seller to convey it to the buyer.
Under the old English common law rules, an assignment was not effective until all other parties to the contract were given written notice. That’s why you want to give written notice to the buyer.
Here’s a strategy. When you’re dealing with buyers and you’re in the strong negotiating position, place into the contract language stating what you’re going to do and ask them to sign it. This is important because sometimes you’ll give notice to a buyer at the closing table and they don’t know what an exchange is and they’re mad at the seller. You want that buyer to be committed to signing your 1031 documents from the outset.
Like-Kind Exchanges of Real Estate
Section 1031 of the Internal Revenue Code is a great provision that allows any United States taxpayer to defer capital gains taxes when selling qualified property, so long as they meet certain criteria. It’s easy to get bogged down in the details of a like-kind exchange. That’s why it’s a great idea to work with a qualified intermediary who can guide you through the details of your exchange. At CPEC1031, LLC we have decades of experience working on all types of 1031 exchanges. Let us help you navigate the process and start saving money today!
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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