As an expert in 1031 exchanges, we highly recommend adding specific language to your purchase and sale agreement to protect your investment and ensure a successful exchange.
Firstly, we suggest including language that clearly states your intent to complete a 1031 exchange. This will ensure that all parties involved are aware of the exchange and can take the necessary steps to facilitate it.
The verbiage below is satisfactory in establishing the Exchanger’s intent to perform a tax-deferred exchange and releases the other parties from costs or liabilities as a result of the exchange.
Buyer is aware that Seller intends to perform an IRC Section 1031 tax-deferred exchange. Seller requests Buyer’s cooperation in such an exchange and agrees to hold Buyer harmless from any and all claims, costs, liabilities, or delays in time resulting from such an exchange. Buyer agrees to an assignment of this contract to 1031 Exchange Place by the Seller.
Additionally, it's crucial to include language that establishes a timeline for the exchange, including deadlines for identifying and acquiring the replacement property. This will help ensure that you comply with IRS regulations and avoid potential penalties.
We also recommend including language that allows for the assignment of the purchase agreement to a qualified intermediary. This will enable you to work with a professional intermediary who can guide you through the exchange process and help you avoid any pitfalls.
Lastly, we suggest including language that addresses any potential tax liabilities that may arise during the exchange. This will help protect you from unexpected tax consequences and ensure that you are able to complete the exchange successfully.
Overall, adding language to your purchase and sale agreement that addresses these key issues can help ensure a smooth and successful 1031 exchange. As always, we recommend consulting with a qualified intermediary or tax professional to ensure that your specific needs are fully addressed.