In a 1031 exchange, the G(6) limitation says that a taxpayer can’t pledge, borrow, or receive the 1031 exchange funds that are held by the qualified intermediary. When the sale of the relinquished property occurs, the money goes into a “qualified intermediary containment chamber.” The qualified intermediary holds that money until the exchange is over so that the taxpayer can’t receive it.
Transactional Expenses
You also have to deal with transactional expenses involved in the 1031 purchase. For that we need to look at the G(7) treasury regulations. G(7) is kind of an exception to the G(6) limitations.
In a 1031 exchange, your sales proceeds should, in theory, be applied to the acquisition of the replacement property. However, the reality is that you don’t get all of your proceeds because some of them may be siphoned off to pay certain transactional expenses (such as real estate commissions, title fees, state deed taxes, recording fees, settlement charges, and more). G(7) basically says that you can pay some of the fees that appear on the settlement statement under local standards without blowing up your entire exchange.
Of course, there are only certain transactional expenses that apply. It’s important to talk with a qualified intermediary to ensure you are abiding by all the guidelines set out in G(7).
Work with a Qualified Intermediary on Your 1031 Exchange
Working with a skilled and experienced intermediary on your 1031 exchange is the best way to ensure its success. At CPEC1031, LLC we have spent over two decades helping taxpayers defer their capital gains under section 1031 of the Internal Revenue Code. Allow us to put our vast experience to work on your next like-kind exchange of real estate. You can contact us today to set up an appointment with one of our qualified intermediaries at our downtown Minneapolis office.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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