One item that taxpayers often think they should be able to pay out of the 1031 exchange proceeds are the costs associated with getting your new loan. However, the IRS looks at this financing arrangement between the taxpayer and the bank as a distinct and separate asset. It’s kind of like a sidecar that’s attached to the real estate itself.
You write off the cost of the loan over the life of the loan, not over the depreciation schedule of the real estate. So when you need to pay any lender fees associated with this separate asset (like a rate lock fee for example), those are items that you may want to pay out of pocket rather than with 1031 exchange funds. Even though the G(7) guidelines may indicate that these items could be paid with 1031 exchange funds, it’s probably safest to just pay these items using non-1031 exchange funds.
Continue Your Investment with a 1031 Exchange
Defer your capital gains taxes when selling real estate and continue your investment with a 1031 exchange! Section 1031 of the Internal Revenue Code is a powerful tool that any US taxpayer can use to build wealth. Talk to the professionals at CPEC1031, LLC today to discuss the details of the 1031 exchange process and see if your property is a good fit for 1031 treatment. Our primary office is located in downtown Minneapolis, but we work with taxpayers throughout the state of Minnesota as well as the United States at large.
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.
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