Dealing With 1031 Tax Exchanges For Real Estate Transactions
There are many expenses involved in the closing of a sale on real estate. There are the standard operating expenses, such as your agent's commission and the recording of the deed, which siphon money out of your proceeds and appear on the closing statement, but there are also the various oddball expenses that arise during the proceedings, some common examples of which are rent proration and security deposits.
A typical closing statement does not necessarily cover said expenses. Although in 1031 exchange transaction, some costs can be entered as debit - there are some that cannot be fashioned in the same way.
In changing ownership, you also transfer future rent and security deposits to the property's new owner. Getting the amount from your own account to cover said expenses can be the most suitable way to deal with this. You can not debit said expenses from your closing statement because in the process, you are freeing money from your account and using 'boot' from the transaction's proceeds.
Taking away boot or sale proceeds has caused many investors to be pursued by the IRS for judicial proceeding. Cash benefits or boot from the sale of a property is not part of a like-kind exchange.
Fees on loan origination, underwriting, and processing all must be dealt with as part of your acquiring possession on new debt on your replacement property. Since they do not form part of a like-kind exchange, the most sensible thing to do is to be the one responsible on these expenses.
What this article would like to leave you is that as an investor, you need to be very careful in your closing transactions. The IRS looks closely into these kinds of transactions and your receipt of cash benefits from 1031 exchanges can have its drawbacks. - 23222
A typical closing statement does not necessarily cover said expenses. Although in 1031 exchange transaction, some costs can be entered as debit - there are some that cannot be fashioned in the same way.
In changing ownership, you also transfer future rent and security deposits to the property's new owner. Getting the amount from your own account to cover said expenses can be the most suitable way to deal with this. You can not debit said expenses from your closing statement because in the process, you are freeing money from your account and using 'boot' from the transaction's proceeds.
Taking away boot or sale proceeds has caused many investors to be pursued by the IRS for judicial proceeding. Cash benefits or boot from the sale of a property is not part of a like-kind exchange.
Fees on loan origination, underwriting, and processing all must be dealt with as part of your acquiring possession on new debt on your replacement property. Since they do not form part of a like-kind exchange, the most sensible thing to do is to be the one responsible on these expenses.
What this article would like to leave you is that as an investor, you need to be very careful in your closing transactions. The IRS looks closely into these kinds of transactions and your receipt of cash benefits from 1031 exchanges can have its drawbacks. - 23222
About the Author:
U.S. investors can save a lot of money by utilizing a 1031 exchange to defer all of their capital gains tax on the sale of investment property. A 1031 tax exchange is similar to an interest free loan from the U.S. Government.
posted by X - Men @ 3:22 PM
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