Closing Of A Sale On Real Estate And 1031 Exchange Transactions
In closing a sale on real estate, a number of expenses have to be considered such as the standard operating expenses pertaining to the money used as your agent's commission and for the recording of the deed. All these are taken from the proceeds and are reflected on the closing statement. Yet there are also other costs like rent proration and security deposits that crop up during the transaction.
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.
The correct way to go about transferring future rent and security deposits to the new owner of the property is to cut a check from your own expense account. If you debit these kinds of expenses to your closings statement, you are effectively freeing money in your account for your own use and taking what is known as boot from the proceeds of the transaction.
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.
This article would like to emphasize the importance of being extra cautious in your 1031 exchange transactions. In case you are tempted to receive non like-kind proceeds or cash benefits from 1031 exchange, put in mind that the IRS may run after you and are actually looking closely on these types of transactions. - 23212
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.
The correct way to go about transferring future rent and security deposits to the new owner of the property is to cut a check from your own expense account. If you debit these kinds of expenses to your closings statement, you are effectively freeing money in your account for your own use and taking what is known as boot from the proceeds of the transaction.
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.
This article would like to emphasize the importance of being extra cautious in your 1031 exchange transactions. In case you are tempted to receive non like-kind proceeds or cash benefits from 1031 exchange, put in mind that the IRS may run after you and are actually looking closely on these types of transactions. - 23212
About the Author:
United States investors can save a lot of money by using 1031 tax exchanges to defer all of their capital gains tax on the sale of investment property. 1031 exchanges are like an interest free loan from the U.S. Government.
posted by X - Men @ 2:33 AM
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