1031 Costs and Tax Questions

Hi Everyone,

We’re in the process of selling our first investment property and have some questions about 1031 exchanges. Here’s the background…

We bought the property as personal residence but when we moved decided to do a Lease Option on it. During the Lease Option period we moved the company into an LLC registered for the purposes of Real Estate Investing and the property has been in the LLC for about 3 months. We’ll have a decent gain on the property and are 4 days away from closing. We can move the closing date by a week if we need to.

I spoke with a company that does 1031 exchanges and they said they can get the exchange done within the 4 days so we won’t need to delay closing.

Three questions:

  1. How much does a 1031 usually cost? This company is quoting as $500 to put it into the 1031 and then $500 to take it out, and if we split it up $350 for each additional property. Is this reasonable?

  2. Given that this is our first investment property, when it sells it will be the only income the LLC has had so far; what would our tax obligations be? In other words… Would it be more than the $1000 that we’ll be paying to do the 1031 exchange?

  3. Is the cost of a 1031 exchange tax deductable? (I would think that the answer is yes but won’t be able to speak with my accountant until the morning.

Much appreciated,