Allowable Closing Costs in a 1031 Exchange

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One area where taxpayers can potentially slip up during the 1031 exchange process is closing costs. There are certain items that are allowable as closing costs and other items that are not. Knowing the difference is essential to the success of your like-kind exchange. In this article, we are going to discuss allowable closing costs in a 1031 exchange of real estate.

Allowable Closing Costs

In a 1031 exchange, not all closing costs can be paid with the exchange funds. The following is a list of all the allowable closing costs in a 1031 exchange:

  • Broker’s commissions;

  • Real estate agent commissions;

  • Title transfer taxes;

  • 1031 exchange facilitator fee;

  • Owner’s policy title insurance fees;

  • Escrow fees;

  • Attorney’s fees; and

  • Title recording fees

Non-Allowable Closing Costs

Here are a handful of closing costs that should NOT be paid using the 1031 exchange funds:

  • Costs and fees associated with acquiring loans;

  • Security deposits;

  • Prorated rents;

  • Insurance premiums;

  • Property taxes;

  • Fees associated with lender’s title insurance;

  • Lender’s appraisal fees; and

  • Lender’s inspection fees.

  • Paying Tax with Exchange Funds or Outside Funds

It’s important to pay these costs in cash and not using the 1031 exchange funds, as doing so could threaten to derail your exchange

Tax Deferral with Like-Kind Exchanges

A like-kind exchange offers many benefits to the taxpayer – the biggest of which is capital gains tax deferral. As long as you move all of your exchange funds into a new replacement property, you can defer a hefty capital gains tax bill. This keeps your money working for you in a continued investment property. At CPEC1031, we offer like-kind exchange services to taxpayers throughout the United States. Give our like-kind exchange professionals a call today to structure your 1031 exchange.

  • Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2020 Copyright Jeffrey R. Peterson All Rights Reserved

Defer the tax. MAXIMIZE your gain.