The first step in a 1031 exchange is to sing it from the mountain tops in your contracts that you intend to do a 1031 exchange. When you sign the purchase agreement for the sale of your relinquished property you want to include language that affirmatively says you’re doing an exchange. You want to elicit the cooperation of the buyer because there will be a notice that will be given to that purchaser that pertains to your exchange. What you’re going to tell them is “I have assigned my rights in this purchase agreement to the qualified intermediary.” You want to be able to prove that you gave that written notice so you ask the buyer to sign an acknowledgement.
Furthermore, you want to get into contract with your qualified intermediary early in the process. As soon as you’ve got a purchase agreement signed with the buyer it’s time to make arrangements with the intermediary to have them step into your shoes as the seller so they can receive the proceeds and start interacting with the closing agent. There’s a lot of behind the scenes coordination that has to be done between the intermediary and the closing agent to make sure the transaction goes smoothly.
When you sign a purchase agreement for your replacement property, you may also want to include the standard language that states your affirmative desire to do a 1031 exchange and you want to engage with the intermediary as early as possible to make the arrangements behind the scenes. This will set you up for a smooth closing process.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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