What Qualifies a Deductible Selling Expense in a 1031 Exchange?
by Maura Snabes, Esq., CES, NTP
December 2024
I often get questions from taxpayers on how much they have to reinvest to fully defer their gain and what is considered to be a deductible selling expense in a 1031 Exchange. As a QI, I always recommend that taxpayers check with their CPA or tax attorney to formally answer such questions--after all, they are the experts!
That being said, I have had the privilege over the past 30 years to give many 1031 presentations to and with CPAs and tax attorneys, who have provided a summary of what is a deductible selling expense and what is typically not to be considered such.
NOTE: Please confirm the following with your CPA or tax attorney, as we do not give tax advice and this list may not be all-inclusive.
The following are generally considered to be deductible selling expenses:
- Commissions
- Marketing and advertising expenses
- Closing costs/Escrow fees/Notary fees/Courier fees
- Title search fees/title examination/title insurance
- Document preparation fees
- Minor repairs/ repairs or maintenance requested by a buyer
- Appraisal fee
- Pest inspections
- Testing fees
- Survey
- Government recording fees/Transfer tax
- Home warranty
- Legal and 1031 fees
- Qualified Intermediary fees
Items that are NOT considered to be a deductible selling expense:
- Proration of rents
- Proration of taxes
- Credit Report
- Property insurance premiums debited against the taxpayer
- Reserved deposited with lender and utilities
- Any item payable in connection with a loan
Be sure to keep good records of your expenses in order to deduct them from your taxes, keeping all receipts and invoices related to the sale of the property. You should also keep any canceled checks or credit card statements as proof of payment. If you pay any expenses electronically, save a copy of the transaction history. If you hire professionals to help sell the property (such as a real estate agent or attorney), keep a copy of the contract or invoice.
Wishing everyone Happy Holidays and a Happy New Year!
Maura is a licensed attorney and a Certified Exchange Specialist. She is a founder of Corporate Exchange Services (CXS), established in 1995.
CXS is a member of the Federation of Exchange Accommodators (FEA), the industry's leading professional trade organization.
Corporate Exchange Services handles forward, reverse, and improvement exchanges throughout the U.S.
Regardless of the transaction complexity, CXS has the expertise and personal approach needed to successfully complete even the most complex 1031 exchange.
Contact msnabes@corp1031.com to get started
