Determined by Seller’s Transaction Strategy
A 1031 exchange, also known as a like-kind exchange, allows the seller to defer capital gains taxes by reinvesting the sale proceeds into another qualifying property. Whether the seller is using a 1031 exchange depends on their intent and declaration during escrow.

• Must be declared prior to or at closing—not retroactive
  
• Only applies to investment or business properties (not personal residences)
  
• Requires use of a qualified intermediary (QI) to hold and transfer sale proceeds
  

Disclosed During Escrow or in the Purchase Agreement
If the seller is pursuing a 1031 exchange, this is typically stated in the purchase and sale agreement, along with appropriate addenda or escrow instructions. The buyer is usually asked to cooperate, though no financial obligation is required.

• Language may include: “Seller intends to effect a 1031 exchange and Buyer agrees to cooperate.”
  
• The seller’s intermediary will handle fund transfers to maintain exchange eligibility
  
• This declaration protects the seller’s tax-deferral rights and ensures timeline compliance
  

Requires Strict Timeline and IRS Compliance
To qualify for a 1031 exchange, the seller must follow strict IRS rules:

• Identify replacement property within 45 days of closing
  
• Close on the new property within 180 days of the original sale
  
• Both properties must be held for investment or productive use in a trade or business