The IRS requires that if any party to a transaction wishes to do a 1031 Exchange, all parties to the closing are made aware. The best place to do this is in the purchase and sale agreement.

Although there is no specific language that the IRS requires for such disclosure, here are a few examples that you may use:

Sale of Relinquished Property
Buyer is aware that Seller reserves the right to perform a 1031 tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code. Buyer agrees to an assignment of the rights under this purchase agreement by the Seller to Security 1st Exchange as Qualified Intermediary. Buyer agrees to cooperate in this exchange by executing any additional documents at no cost or liability to the Buyer.

Purchase of Replacement Property
Seller is aware that Buyer will be executing a 1031 tax-deferred exchange pursuant to Section 1031 of the Internal Revenue Code. Seller agrees to an assignment of the rights under this purchase agreement by the Buyer to Security 1st Exchange as Qualified Intermediary. Seller agrees to cooperate in this exchange by executing any additional documents at no cost or liability to the Seller.

We will also include language in our 1031 exchange instructions that will be signed by all parties that discloses the taxpayer’s intent to complete the 1031 exchange.

Coordinating with a Qualified Intermediary to prepare specific 1031 documents is a requirement under Section 1031 and Security 1st Exchange will aid in simplifying and assisting in this process.