If you’re diving into a 1031 exchange to defer taxes when selling investment property, you’ll encounter a few essential documents. One of the most critical — but often misunderstood — is the Assignment of Relinquished Property Contract.
While the name sounds technical (and a little intimidating), it plays a simple but crucial role: it officially hands off your rights in the sale contract to your Qualified Intermediary (QI), which is required to maintain the integrity of your tax-deferred exchange.
Let’s break it down so you know exactly what it does — and why it matters.
What Is the Assignment of Relinquished Property Contract?
In a 1031 exchange, you are not allowed to sell your property directly and pocket the cash, even for a moment, or the IRS will view it as a taxable sale.
To keep everything compliant, you must “assign” your rights in the sales contract to a Qualified Intermediary (QI).
The Assignment of Relinquished Property Contract is the formal document that does this.
It states that the QI steps into your shoes for the purposes of:
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Handling the sale,
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Receiving the proceeds,
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Holding the money safely until you acquire your replacement property.
You are still the underlying seller, and your buyer may not even notice anything different during closing — but legally, the assignment ensures that the sale is part of a tax-deferred exchange rather than a straight-up taxable transaction.
Why Is It Necessary?
The IRS has strict rules for 1031 exchanges:
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You cannot have actual or constructive receipt of the sale proceeds.
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You must exchange property — not cash.
By assigning your contract to the QI, you avoid receiving the money from the sale directly.
Instead, it flows into a special account controlled by the QI, who later uses it to buy your replacement property.
Without the assignment, the IRS would view the transaction as a simple sale followed by a purchase — and you could lose your tax deferral.
What Does the Assignment Cover?
Here’s what a typical Assignment of Relinquished Property Contract usually includes:
✅ Identification of the Parties:
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You (the taxpayer/seller) and your Qualified Intermediary.
✅ Description of the Relinquished Property:
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The address and details of the property you’re selling.
✅ Assignment of Rights:
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You transfer (assign) all your rights and interests in the sales contract to the QI.
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You often also direct the escrow or closing agent to recognize the QI’s role in the transaction.
✅ Preservation of Obligations:
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You usually retain obligations under the sales contract (such as disclosures or property condition requirements) — the assignment affects rights, not responsibilities.
✅ Notification to Buyer:
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Often, the buyer will be formally notified that the assignment has occurred.
(In most cases, it doesn’t affect the buyer’s side of the deal.)
✅ Compliance with 1031 Exchange Rules:
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The document will state that this assignment is done solely to facilitate a tax-deferred exchange under Section 1031 of the Internal Revenue Code.
In Simple Terms:
The Assignment of Relinquished Property Contract says,
“I, the seller, am handing over my sale rights to my Qualified Intermediary — not because I’m backing out, but because I need to follow IRS rules to keep my sale tax-deferred.”
It’s a behind-the-scenes but absolutely essential step to protect your 1031 exchange.
Final Thought
Even though it sounds like a small technicality, the Assignment of Relinquished Property Contract is a cornerstone document for any successful 1031 exchange.
Without it, you run the risk of disqualifying your exchange — and facing a hefty tax bill.
Make sure your Qualified Intermediary prepares and files this assignment properly, and work closely with your closing agent to ensure that all parties recognize the QI’s role when the deal closes.
