In order to get your relinquished property sold, you had to spend some money to repair it and get it ready. Can you recoup those outlays that you made to fix up the property before its sale?
Generally, in a 1031 exchange you can only siphon off money to pay transactional expenses that are necessary like a real estate commission, state deed tax, recording fees, etc. Repair expenses are usually considered operational expenses. As a result, you probably don’t want to reach into the cookie jar for reimbursement of your operational expenses.
The only exception to that rule would be a situation in which the buyer extracts a concession from the seller in the purchase agreement that requires a certain repair as a material factor of the contract. In that case, the expense may be a transactional expense because it’s a requirement of the sale contract. This may also depend on how the concession is written in the contract so you need to surround yourself with a great team including your tax preparer, your real estate agent, and your qualified intermediary.
1031 Exchange Questions, Answered
Get all of your 1031 exchange questions answered by reaching out to a qualified intermediary at CPEC1031, LLC. We have more than twenty years of experience working on exchanges of real property under section 1031 of the Internal Revenue Code. We are here to help guide you through all the details of your next 1031 exchange and do everything possible to defer 100% of your capital gains tax burden.
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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