Sunday, November 19, 2006 at 10:46AM | Staff Do I Need to Include Any Special Language in My Purchase and Sale Agreement When Structuring a 1031 Exchange?
Investors have been told for years that certain contract language must be included in their purchase and sale agreement and any other settlement/closing instructions such as escrow instructions regarding their intent to complete a 1031 tax deferred exchange transaction. But, does the taxpayer really need to do this?
1031 Exchange Compliance Issues
The answer from a 1031 exchange compliance perspective is no. As long as the taxpayter follows all of the required steps to complete a 1031 tax deferred exchange the lack of any specific language such as a "cooperation clause" regarding his intent to complete a 1031 tax-deferred exchange in his purchase and sale agreement will not affect or disqualify his 1031 tax deferred exchange.
Disclosure Requirements
There may be certain disclosure language required under state or local laws, so you should always consult with someone familiar with state and local real estate disclosure requirements. It may also be a good idea to include certain language even it if is not required, such as a cooperation clause, to make sure that everyone is on the same page.
Cooperation Clause
I typically recommend including cooperation clause language so that the like-kind exchange is disclosed to the other parties involved in the transaction and the other parties agree to cooperate with the Investor's 1031 exchange. You can see sample cooperation clause language here: http://www.exeterco.com/sample_cooperation_clause.aspx.
