While a 1031 exchange provides the typical real estate investor many advantages over time, the cost of completing a 1031 exchange should be considered. Similar to any other transaction in business the costs for the exchange will vary based on the exchange firm as well as the number of properties or even where the property.
The costs associated with an exchange under 1031 are typically approximately $600-$1,200 The majority of costs coming from fees to a Qualified Intermediary. This is for a simple deferred exchange in which you can sell the property that you have sold and buy a new one. A more complex 1031 exchange type might have hidden fees and will cost you more.
To make an accurate comparison of fees related to exchanges 1031 it is important to take into account the following aspects:
- Income from interest (paid by you)
- Income from interest (kept from the broker)
- Costs for setup and up-front costs
- Administrative costs
- Per property costs
- Fees for transactional or service
- Qualified Trust Accounts fees , or charges
If you’re considering the possibility of a DST or exchange investment and want to understand the differences between “what’s it will cost” by using our services as opposed to. the competition that is commission-driven, schedule a free 30 minute consultation. We’ll provide you with an overview of the costs involved in executing an exchange of 1031 and DST on our side.
What is the Cost of an Exchange of 1031 Cost?
When you make a 1031 swap the majority of the costs that you’ll face are as fees that are paid to your intermediary that is qualified. In the average, you can expect to shell out between $1,200 to $600 in the total cost of exchange. Additionally, you may be required to factor in additional fees, like charges for delivery within the next day.
Be aware that the more complicated or complex the exchange process for 1031 is, the more you’ll have to shell out on fees and exchange costs.
Qualitified Intermediary Fees
Because Qualified Intermediaries play most of the duties on a 1031 exchange, they are likely to be paid the majority of charges. It is typical for QI’s to make two-thirds of their revenue from interest on funds exchanged. The price to host an average Delayed Exchange ranges from $750-$1,250.
The fees are for lodging, qualifying, and administrative tasks of the exchange 1031. Most QI’s charge an additional $300-$400 to each property added that is added to the exchange. Some will charge according to the cost of the property however expect the charge to be within the cost of the range.
Additionally, the bulk of QI’s revenue is derived from the interest earned by an exchange account. A 1031 exchange demands that a QI hold the proceeds of selling the surrendered property until the purchase of the new property. While you wait, the held funds are able to earn interest in the form of a money account or a deposit market. The QI retains a portion or all of these funds.
Some QI’s will request charges for transaction expenses, particularly when the exchange is complicated or has multiple properties. QI’s handling reverse and construction exchange typically charge several hundred of dollars for transaction fees.
1031 Exchange Cost – 1031 Exchange Allowable Expenses
A typical 1031 exchange consists of numerous expenses to facilitate the exchange process. Although these costs are essential to the exchange process, some closing costs that are taken out of the sale or proceeds from exchanges may be taxable on the part of the seller.
Below are the most common acceptable closing costs for the 1031 exchange as well as their cost-assigning metrics:
|Allowable Closing Costs/Expenses
|Metrics to assign cost averages
|Appraisal for purchase contracts
|About $5,000 based on the construction size
|Flat fee of of thousands to hundreds
|Of course, it is 48% of the total value
|Most often, 1-2% of the total value of the property
|Typically, 1-3% of value of the entire property
|Usually $0.1 to $0.1
|As high as 110% the known county bill
|A typical $200, but it could go into the thousands
|It starts at 1 percent of the value of the property
|Cost of Loan Acquisition for New Property
|It varies based upon the company that operates exchanges.
Learn more about exchanges that are 1031-compliant and non-allowable closing cost expenses.
Do 1031 Exchange Fees Tax-deductible?
Yes, many 1031 exchange charges are tax-deductible and do not create a tax-deductible event for the investor. Exchange fees for 1031 such as brokerage commissions and title closing fees won’t create tax liabilities.
You Can Get Help
Tax & Law Research Inc. always suggests that taxpayers consult their legal or tax advisor for all issues involving taxes and the Internal Revenue Service. We are looking meeting with you for that future Section 1031 exchange for an affordable cost. If you have any questions about the low cost of an exchange under Section 1031, don’t be afraid to connect to us right now.