Notice of Assignment

The notice is the regulation's switch that puts your intermediary into your contract.

A qualified intermediary under Reg. section 1.1031(k)-1(g)(4)(iii) must, under a written exchange agreement, acquire and transfer your old property and acquire and transfer the replacement. Paragraph (g)(4)(iv) treats it as doing so if it enters into the contract with the other party and the property then passes under that contract, even when title goes straight from you to the buyer.

Paragraph (g)(4)(v) explains how an intermediary enters a contract you already signed: your rights are assigned to it, and all parties to that contract are notified in writing of the assignment on or before the date of the relevant transfer. The regulation's own example is a seller who signs a sale contract, then assigns it and notifies the buyer before closing; the intermediary is treated as having acquired and transferred the property.

The notice is a different document from your exchange cooperation clause, which is the contract promise to accept the assignment. It is also different from the 45-day identification of replacement property, described in how to identify replacement property.

A worked example has two notices, one for each side of the exchange.

Hypothetical: you sign a contract on March 1 to sell a rental for $700,000. On March 25 you sign the exchange agreement and assign the sale contract to your intermediary, and on March 27 the buyer receives and acknowledges written notice. Closing is March 31, and the net proceeds go to the intermediary, not to you.

On day 40 you sign a contract to buy a $750,000 replacement. That is a new contract, so it needs its own assignment and its own written notice to the replacement seller before the day 100 closing. Treat these as rounded examples and confirm your own numbers with your CPA. The dates you report on Form 8824 are the transfer, identification and receipt dates, so keep the signed notices with that file.

It bites when the notice is skipped on the replacement purchase or delivered after the deed records.

The common miss is the replacement contract, signed weeks after the exchange opened and closed by a different agent. Without the assignment and notice before that transfer, the regulation's mechanism for treating the intermediary as a party to that contract is not met. What a QI needs to open an exchange lists the documents to line up early.

Notice after the transfer does not satisfy a test that runs to "on or before" the transfer date. Where a contract has several buyers or sellers, all parties means each of them. If the buyer wires money somewhere other than the intermediary, see what to do when proceeds go to the title company.