When engaging in a 1031 exchange for selling or acquiring an investment property, specific expenses covered by the sales or exchange proceeds may trigger a taxable event for the exchanger. Standard selling costs like broker commissions or title closing fees do not incur tax liabilities. However, operational expenses paid from 1031 proceeds during closing will result in taxable obligations for the exchanger. For a standard rule of thumb, an expense that is customary and ordinary is allowable without generating said taxable event. Please note what is allowable is officially determined by your CPA or Tax preparer.

Allowable closing expenses include:

• Real estate broker’s commissions, finder, or referral fees
• Owner’s title insurance premiums
• Attorney or tax advisor fees related to the sale or the purchase of the property
• Closing agent fees (title, escrow, or attorney closing fees)
• Recording and filing fees, documentary, or transfer tax fee

Taxable Closing expenses include:

• Pro-rated rents
• Security deposits
• Utility payments
• Property taxes and insurance
• Association’s dues
• Repairs and maintenance costs
• Insurance premiums
• Loan acquisition fees

For more on fees and to discuss your situation, reach out to us today!

The information presented is for information purposes and is not intended as investment, legal, tax or compliance advice. Land 1031 does not offer or sell investments or provide investment, legal, or tax advice.

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