I am interested in doing an exchange on the sale of my rental property in the next couple of months, and I was just wondering whether or not there was any special terms or provisions I had to put in my escrow instructions?

Thanks!

The language you are looking for is often activated by a checkbox for a paragraph in the purchase agreement, or, in the case of WinForms, it is a separate addendum.  The basic language is that the Buyer will facilitate your 1031 exchange at no cost to the buyer.  This is often an ideal time to clarify any extension you may want to negotiate in the closing date, in case your upleg is hard to find.  Typically, this process is so painless to the Buyer that it is not a deal point.  Activating your agreement with your qualified intermediary, on the other hand, must be accomplished through escrow.

Hi Audrey,

Chuck brings up a good point.  You need to make sure that you have your Qualified Intermediary assigned into your purchase and sale agreement and your escrow instructions before the sale of your relinquished property closes escrow.  Exeter 1031 Exchange Services, LLC is a Qualified Intermediary and can assist you with this.  Their web site is http://www.exeter1031.com. 

Contrary to popular belief, there is no requirement from a 1031 exchange perspective to have any specific language included in your purchase and sale agreement or escrow instructions.  Advisors used to insist on including specific language that was referred to as a "cooperation clause" in the purchase and sale agreement and any escrow instructions, if any, in order to ensure that the transaction would qualify as a 1031 exchange because we did not have any guidance from the IRS. However, once the 1031 Exchange Treasury Regulations were issued it became clear that there was no specific requirement to use this language. 

The first step, which is critical, is what Chuck had indicated that you must have the Qualified Intermediary (also referred to as an Accommodator) assigned into your sale transaction before it closes.  There is no requirement to include any specific language as long as the QI is assigned into the transaction. 

It might be a good idea to include "cooperation clause" or other disclosure language for legal reasons, but it is not required for 1031 exchange purposes.  You can view suggested cooperation clause langauge at http://www.exeter1031.com/sample_cooperation_clause.aspx.

what does cooperating mean?  what does the buyer do to cooperate?

That is a very good question.  You've hit the nail on the head.  The sample cooperation clause linked to above says "cooperation" but the definition of "cooperation" is very different before, during and after litigation.  The only issue from the 1031 exchange point of view is that the buyer must be notified by the seller/qualified intermediary that the seller is completing a 1031 exchange.  This is customarily accomplished by having the buyer sign the Assignment document that assigns the qualified intermediary into the transaction.  However, there may be other things that the seller may want to buy to cooperate in and it might be a good idea to define that such as the Buyer agress to cooperate with Sellers intended 1031 exchange by [fill in with exactly what you want the buyer to cooperate in doing].