How to Begin the Process of a 1031 Exchange

In order to start a 1031 exchange, you need to take a few steps.  The most important is you need to hire an exchange agent prior to your first closing.  In fact, ideally your exchange agent will be consulted prior to even signing the first contract (whether buying or selling).

For the property you are selling, you will want to include some language about your use of a 1031 exchange in the earnest money contract.  This contract language is called the “cooperation clause.”  For example, to use Brazos 1031 Exchange Company, you should include the following language:

“The Buyer acknowledges that it is the intention of the Seller to effect an IRS Section 1031 Tax-Deferred Exchange and that the Seller’s rights under this agreement shall be assigned to Brazos 1031 Exchange Company, LLC, to facilitate such exchange. Buyer agrees to cooperate with the Seller and/or its assigns in a manner necessary to enable the Seller to initiate said exchange at no additional cost or liability. “
Similarly, for the property you are buying, you will need to include the following language:
“The Seller acknowledges that it is the intention of the Buyer to complete an IRS Section 1031 Tax-Deferred Exchange and that the Buyer’s rights under this agreement shall be assigned to Brazos 1031 Exchange Company, LLC, for the purpose of completing such exchange. Seller agrees to cooperate with the Buyer and/or its assigns in a manner necessary to complete said exchange at no additional cost or liability. “
If you forgot to include this language in the contract, it is okay.  You can still do a 1031 exchange, but you will need the opposing party to agree to sign some paperwork related to your 1031 exchange.  It is better practice to include the Cooperation Clause so that it is part of the bargain and the opposing party is agreeable at the outset.
If you need help with a 1031 exchange, contact us through our online contact form.
At Brazos 1031 Exchange Company, we act as qualified intermediary / exchange accomodator for real estate investors and companies doing 1031 real estate exchanges throughout Texas.