1031 Exchange- What Closing Costs Are Deductible?

One of the most frequently asked questions from clients planning a 1031 Exchange is, “Can I use my exchange funds to pay for closing costs without being taxed”? Although surprisingly little guidance is available in the tax code, there are some rules of thumb that will help clients and their tax advisors determine how best to structure a 1031 Exchange without paying unnecessary capital gains taxes.

Closing costs, for purposes of this article, are defined as all costs associated with the closing of a property that is required to complete the transaction. Such costs are required to be disclosed to all sellers and buyers of real property in the HUD-1 Closing  Statement. Any cost that is incurred outside of escrow or the Closing process generally should not be paid for using 1031 Exchange funds, unless the exchange client is willing to pay tax on the amount spent. Such pre-closing items include all maintenance and fixer costs that are incurred to prepare the property for sale. In addition, exchange clients should not be reimbursed for such costs in escrow without being taxed. It is best to pay for such pre-closing costs “out of pocket”.

Non-recurring costs specifically related to the closing can generally be paid for using exchange proceeds and will reduce the property’s net sales price for sellers or increase the net purchase price for buyers. A non-inclusive list of such costs includes:

- Sales commissions
- Title and escrow fees
- Recording fees
- Transfer Taxes
- 1031 Exchange Intermediary fees

Recurring costs or costs that do not specifically relate to the closing should not be paid for using exchange proceeds without incurring a tax liability. When selling property, such costs should be paid for “out of pocket”. When buying property, such costs should either be paid for with loan proceeds, if possible, or “out of pocket”. These costs also do not decrease the net sales price or increase the net purchase price. A non-inclusive list of such costs includes:

- Mortgage interest
- Mortgage prepayment penalties
- All prorated expenses including property taxes, utilities, homeowner’s fees and insurance expenses.

-Excerpt from Leonard Spoto ( Asset Exchange Co.)

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1031 Exchange & Tax Season

Tax season is quickly approaching.  If you completed a 1031 Exchange in 2018 you will need to file Form 8824 to report the 1031 Exchange.

Form 8824 requires that you simply provide the IRS with details about your 1031 Exchange such as a description of the relinquished and replacement properties as well as all the important dates for the 1031 Exchange.

On Form 8824, you’ll also report details about the gain on the relinquished property and the adjusted basis of the replacement property.

If you provide your CPA with the closing statements for all properties involved in the exchange, they will be able to report your exchange on Form 8824.  If you do not have a copy of your closing statement in your records, your agent or escrow officer can provide a copy.

-Excerpt from Leonard Spoto (Asset Exchange Co.)

 

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Facebook leasing additional office space in FiDi

Rumors have surfaced that Facebook will be occupying 743k sq ft at 250 Howard ( aka Park Tower).  Completion of the building is set for q4 2018.

 

 

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Apple Moving to SF

Apple is rumored to be moving to 235 2nd St and occupying ~76K sq. ft. this summer.

It’ll be it’s first foray into SF and a welcome neighbor to an already fantastic SoMa location.

 

 

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Bernal Heights SFH SOLD

73 Carver St. closed for 1,525,000-109.87% list price.

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Live Atop Bernal Hill

This is a modern updated residence with 3b/2ba and 1 car garage parking with interior access.  It’s located on a cul-de-sac in Bernal Heights with easy access to 101/280 as well as shopping and restaurants.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Offered at $1,388,000

For additional photos you can visit www.73carver.com

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One Rincon #4905

You can enjoy these Fantastic Views everyday from your SW facing residence.  Towering up in the sky the building is a sleek and modern work of art.

One of the premier full service buildings on Rincon Hill.   Owners enjoy the amenities of Tower 2 (Sky Lounge, Fitness Center) in addition to the full service amenities in the building ( Door person, valet, gym, pool, barbecue area).  This location is perfect for commuting and accessibility to all things nearby-shopping, restaurants, Embarcadero.

Offered at $1,040,000 with one car parking and dues of $808.65

This will go quickly as Residence #5005 just sold for $1,050,000.

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South Beach Loft

1 Clarence Place #11 is a light filled loft in a great neighborhood.  This 18 unit boutique building is located off a quaint alley between Townsend and Third Street-the epicenter of tech central.

There is one car parking included and dues are $495.  There is also a fabulous roof deck.

It’s within walking distance to restaurants, shops and transportation. One of the sunniest neighborhoods in SF and steps to AT&T park.  It’s offered at $888K.

 

 

 

 

 

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Inner Mission Tri-level Condohttp://www.lizetesantos.com/blog/wp-content/uploads/2015/06/1308valencia_plans.jpg

1308 Valencia is a recently remodeled residence with over 2500 sq. ft that is situated in one of the most lively neighborhoods in the city.  The four bedroom three and a half bath condo offers modern finishes within a traditional Victorian facade.  Dues are $508 and include one car parking.  It’s offered at $2,499,000.

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Mid-Market the Next BIG Neighborhood

Those of us heavily entrenched in the SF market new what would happen next… and the indicators are all falling into place- now 18 new tech companies, two co-working facilities and two VC co-working firms will put Mid-Market on track to become the next hot spot in real estate.

 

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