Property Acquried Through Sheriff Sale Qualifies for 1031 Exchange

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Here is another 1031 exchange question that I received in today's email mail bag: 

If I buy a property which is being sold at auction by
the county for defaulting on property taxes, and assuming I meet the deadlines,
can I use this as a replacement property in a deferred 1031 exchange? If the
last owner of record was a defunct corporate entity whose charter was revoked,
who is the party with whom I am exchanging? Is it the county?

Absolutely, you can bid on and purchase this real property for your 1031 exchange transaction, and it will qualify as your like-kind replacement property to complete your 1031 exchange provided that the two real properties are both held as rental property, for investment use or are held an dused in your business.

County governments normally hold Sheriff Sales to sell properties taken for delinquent real property taxes. The Sheriff Sale will issue a deed and convey title to you upon the closing and settlement. 

Tthe difficultly is regarding the 1031 exchange and how it can be structured to qualify. The 1031 exchange Qualified Intermediary also known as an Accommodator must be assigned into the purchase and sale agreement and escrow instructions, if any. There are often no purchase and sale agreements or contracts at trustee sales or county Sheriff Sales for the Qualified Intermediary to assign into. Therein lies the problem. 

We would need to contact the department responsible for processing the sale to determine how the transaction is actually settled in order to determine how to structure the actual 1031 exchange. But, it can be done. There are other ways to deal with the 1031 exchange if there is no legal documents available for the Qualified Intermediary to assign into.