How to Deal with Fees Associated with your 1031 Exchange Transaction

Many taxpayers who are in the middle of a 1031 exchange have questions about how to account for fees associated with the 1031 transaction. Specifically, can any of the following be included on the settlement statement?

  • Lender Legal Fees

  • Appraisal Fee

  • Appraisal Review Fee

  • Flood Certification

Fees that Cannot be Paid with Exchange Funds

On the closing of the replacement property certain fees associated with the new loan may not be paid with exchange funds without potentially triggering the recognition of gain (which would result in a failed 1031 transaction).

Any lender required expense ideally would be paid for out-of-pocket and not out of the 1031 exchange proceeds. These include:

  • Lender Legal Fees

  • Appraisal Fee

  • Appraisal Review Fee

  • Flood Certification

It is not a good idea to put these on the 1031 exchange closing documents. Pay these fees out of pocket, and keep your 1031 funds away from them in order to protect your 1031 exchange.

  • 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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