Addendum To Contract

When it comes to real estate investing, your cost basis is the price you pay to acquire a property, including any acquisition costs. For example, if you pay $200,000 for a property and pay $5,000 in legal expenses and lender fees, your cost basis is $205,000.

Your basis is equal to the amount you originally paid for the property, plus any improvements you made, minus depreciation deductions. For example, say you have a rental house located at 589 Santa Sophia Ave. You bought the property for $80,000 and paid a total of $40,000 for foundation and roof work.

The exchange allows for the deference of any taxable gains on the property that is first sold.The replacement property must be secured, and the exchange finalized no later than 180 days after the sale of the original asset.

Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free. The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind.

Trade up in real estate value with one or more replacement properties. Reinvest all of your 1031 exchange proceeds from the relinquished property into the replacement property.

The short answer. The direct cost to you in a 1031 exchange typically comes in the form of a fee paid to your QI. QI fees vary, but most reports indicate that a typical deferred 1031 exchange costs between $600 and $1,200.

A 1031 exchange gets its name from Section 1031 of the U.S. Internal Revenue Code, which allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

A successful 1031 exchange isn't a do-it-yourself project. You must follow IRS rules to realize the tax deferral benefits, and you'll need a middle person, called a qualified intermediary (QI).