Title closers often wonder what they can put on a settlement statement when a client is selling their old relinquished property in a 1031 exchange. Here are a couple of tips.
Don't Gum Up the Closing Statement
In any 1031 exchange, you want to take all of the proceeds or equity that the seller has in the relinquished property and move that to the new replacement property. So we don't want to gum up the closing statement on the relinquished property with a bunch of sale expenses that are peculiar and weird. For example, we wouldn't want to put items on the closing statement that debit the sales proceeds for unusual, non-customary expenses, nor do we want to include expenses that are really operational.
Taxes, Rent & Insurance Costs
So if you have a debit for tax prorations, rent prorations, insurance costs, or anything that is really an operational expense related to the property, it's prudent to have the taxpayer and the taxpayer’s CPA or tax advisor talk about those expenses before the settlement statement is finalized.
It may actually be prudent for the seller to bring money into the closing to pay the prorated taxes, to pay the prorated rents, to pay any security deposits that need to be transferred to the buyer, and also to pay any other operational expenses like insurance. By having this preliminary settlement statement prepared and circulated to the appropriate advisors you can assure yourself that the seller will get the best result at the closing with the least amount of drama and disruption.
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.
© 2021 Copyright Jeffrey R. Peterson All Rights Reserved