1031 Exchanges And The Closing Expenses On Real Estate Sales
In closing a sale on real estate, a number of expenses have to be considered such as the standard operating expenses pertaining to the money used as your agent's commission and for the recording of the deed. All these are taken from the proceeds and are reflected on the closing statement. Yet there are also other costs like rent proration and security deposits that crop up during the transaction.
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 correct way to go about transferring future rent and security deposits to the new owner of the property is to cut a check from your own expense account. If you debit these kinds of expenses to your closings statement, you are effectively freeing money in your account for your own use and taking what is known as boot from the proceeds of the transaction.
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
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 correct way to go about transferring future rent and security deposits to the new owner of the property is to cut a check from your own expense account. If you debit these kinds of expenses to your closings statement, you are effectively freeing money in your account for your own use and taking what is known as boot from the proceeds of the transaction.
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
About the Author:
U.S. investors can save big money by using a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from Uncle Sam.
posted by X - Men @ 12:16 AM
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