When you’re conducting a 1031 exchange of real estate, it’s important to do everything possible to avoid receiving any cash boot, in order to ensure the success of your exchange. Here’s an great pro tip that some taxpayers can utilize to avoid boot in a 1031 exchange of real estate.
Avoiding Boot
The buyer on a replacement property will extract a concession from the seller where the seller agrees to pay for up to $5,000 of the buyer’s closing costs and prepaid expenses. Then the buyer moves those charges that are related to the lender fees off of their side to the closing statement and on to the seller side pursuant to that concession so the seller ends up paying for those costs rather than the buyer.
Pay Questionable Expenses Out-of-Pocket
When in doubt, it’s always better to pay questionable transactional expenses out-of-pocket rather than dipping into the exchangor’s 1031 exchange funds. Also, it’s a good idea to ask the exchangor’s accountant or CPA to review and comment on the closing/settlement statement before the closing is completed, because once the closing is done it’s too late to change the disbursements.
CPEC1031 LLC
At CPEC1031 LLC, we have decades of experience facilitating commercial transactions across the United States. Contact our commercial real estate professionals at our primary offices in Minneapolis today to learn more about our services and how we can help with your next commercial transaction.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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