The following is a quick guide for title closers about selling expenses and how to show them on the settlement statement so that we don't mess up the 1031 exchange. On the sale of the old relinquished property, closers need to be careful about tax prorations, rent deposits, and rent prorations. So let's talk about those three issues.

Taxes

The taxes that are owed for the real estate need to be paid by the seller for the days in the year in which the seller has been the owner of the property. Normally the seller would pay their property taxes out of their operating account. So our suggestion is that when the seller can bring the cash to the closing they should pay the real estate tax proration out-of-pocket.

Rent Proration

Next let’s talk about the rent proration. If the seller has collected the rents for the month but must pay over to the buyer that portion of the rent for the days in which the buyer will be the owner of the property, the seller has already got that cash in their operating account, and again they should take that money out of the operating account and wire it to the closing - pay the rent proration out of pocket because they've already collected the rents.

Security Deposits

Next we have security deposits. Hypothetically the seller had been holding those deposits that tenants put up when they signed their leases in separate, segregated accounts. So the seller should drain those separate, segregated accounts and pay the security deposit over to the buyer. Now that's the right way to do it but not every seller wants to do it the right way. That's where the black letter law meets the gray reality of the closing experience. If you have questions about how to deal with closing costs on the sale of the relinquished property please feel free to reach out to me directly.