Determining Which Items Can Be Reimbursed in a 1031 Exchange

 1031 Reimbursement

Many taxpayers conducting a 1031 exchange have questions about what can and cannot be reimbursed at closing. Can the following items be reimbursed to the seller at closing for a 1031 transaction?

  • Staging
  • Light Timer
  • Cleaning Supplies
  • New Stove
  • Handyman Work
  • Painting
  • Changing locks
  • Repair to Boiler

The short answer is no. None of these items may be reimbursed to the seller in a 1031 exchange. All of the proceeds should be sent to the 1031 account.

Generally, only “transactional items” that are “customary” may be paid out of the proceeds. These seem more like operational repairs and ownership/maintenance expenses and not customary. These do not seem transactional or routinely on closing statements. From the IRC:

  • (ii) Transactional items that relate to the disposition of the relinquished property or to the acquisition of the replacement property and appear under local standards in the typical closing statements as the responsibility of a buyer or seller (e.g., commissions, prorated taxes, recording or transfer taxes, and title company fees).

It’s a good idea to consult with your accountant or CPA about this matter as well.

  • Start Your 1031 Exchange: If you have questions about the 1031 Exchange Process, feel free to call me at 612-643-1031.

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