1031 Exchanges And The Closing Expenses On Real Estate Sales

By Timothy C. Coval

The closing of a sale on real estate property involves a number of expenses that may draw off from your proceeds and reflect themselves on the closing statement. Some of these are the standard operating expenses or the ones used for your agent's commission and the recording of the deed. But during the proceedings, additional expenses may also arise like security deposits and rent proration.

These types of expenses do not form part of the closing statement. Transactions on 1031 exchange allow some expenses to be debited on your closing statement. However, some costs are inappropriate to be included so.

The property's new owner can have future rent and security deposits via a check taken from your personal account. It may pose some danger to debit these kinds of expenses to the closing statement primarily because in the process, you are taking 'boot' from the transaction's proceeds. In addition, you are freeing an amount from your account that is supposed to be for your own use.

Taking away boot or sale proceeds has caused many investors to be pursued by the IRS for judicial proceeding. Cash benefits or boot from the sale of a property is not part of a like-kind exchange.

You are responsible for all the expenses related to your replacement property particularly those that are not under like-kind exchange. In the course of a 1031 exchange - you also have to take into account fees for loan origination, underwriting, and processing. Payment of these fees has to come from your own property.

The fact of the matter is that the IRS examines these sorts of transactions, and will not look kindly on your receiving non-like-kind proceeds or cash benefits from 1031 transactions. With this in mind, you should be wary and take care regarding what expenses end up on your closing statement. - 23208

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U.S. investors can save a lot of money by utilizing 1031 tax exchanges to defer all of their capital gains tax on the sale of investment property. 1031 exchanges are like an interest free loan from Uncle Sam.