Auctions Maybe the Winning Bid for You
It is no secret that there are a number of rules to follow in order to successfully complete a 1031 tax-deferred exchange. When relinquishing 1031 exchange property or acquiring replacement property thru an auction, it takes a little more planning but can certainly be accomplished. Whether you are effecting a real property exchange or one with tangible or intangible personal property held for business use or investment, 1031 CORP. can help you preserve your ability to exchange.
Many of the procedures for real property and personal property exchanges are the same so we will review them together.
Selling the Relinquished Property thru an Auction
- Assign Exchanger’s rights (but not obligations) in the agreement with the auction house to 1031 CORP. as the Qualified Intermediary (QI).
- Prepare a notice to be given to each potential buyer when they arrive that serves as written notification of Exchanger’s intent to exchange and advising them the Exchanger is assigning their rights in the Agreement to 1031 CORP.
- Make sure all payments are made payable to the auction house or 1031 CORP.
- The auction house will be directed to wire all auction proceeds to 1031 CORP.
Acquiring Replacement Property thru an Auction
This pertains not only to traditional auctions but also purchases thru a tax or Sheriff sale.
- Although you have 180 days to complete an exchange, you do have to identify the replacement property within 45-days of the sale of the relinquished property. When purchasing properties at an auction or a sheriff’s /tax sale, it is hard to plan ahead and quite risky to list an auction property as one of your replacement properties so it is recommended that you attend auctions within the 45-Day Identification Period.
- When identifying personal property, you must specifically unambiguously identify the asset to be acquired, including make, model and year which makes it difficult to satisfy this requirement if the auction is after the 45th day.
- 1031 CORP. will forward to the Exchanger a certified check made payable to the auction house or Sheriff’s Department in advance of the auction. If the Exchanger does not have the winning bid, the Exchanger simply returns the certified check to 1031 CORP. and the funds are credited back to the exchange account.
- If there are excess funds from the purchase, the auction house can return those funds to 1031 CORP.
While auctions do take more planning, 1031 CORP. has worked with a number of clients who have successfully sold and purchased 1031 property this way.