How much does a 1031 exchange cost? Like any unique transaction, the cost for a 1031 exchange varies based on its complexity, the amount of properties bought and sold and even the location of those properties. If just left at that, this article would not be very helpful. We’ll look at a few common scenarios to determine the general fees associated with Delayed and Reverse Exchanges.
Cost and Fees for a Delayed Exchange
The most common 1031 exchange type is the Delayed (Forward) Exchange. This type of exchange is classified by the selling of the relinquished property first and then acquisition of the replacement property within 180 calendar days. The average fee to accommodate a Delayed Exchange ranges from $750-$1,250. This fee includes the qualifying, accommodation and administrative work of the 1031 exchange. If you were to include additional properties to sell or acquire, the additional property fee could range from $300-$500. Some Qualified Intermediaries will charge more based on the sales price of the properties, but most will fall into the range provided.
In addition to the set up or administrative fees, most Qualified Intermediaries (QI) earn interest on the exchange proceeds as they’re held in escrow on behalf of the Exchangor. The QI will receive this interest directly from the bank and pay all necessary taxes on the amount. If for example the QI’s bank provides a 1.35% interest rate on the funds, it will equate to roughly $3.75 a day per $100,000 in escrow. It’s important to understand the full fee structure of the QI that you are engaging when comparing QIs, a lower initial fee may not equate to the lowest fee.
It’s also advisable to determine if your QI will be charging you for a rush fee to accommodate a last-minute exchange. Other fees to watch for are wire fees, courier charges or check writing fees.
Cost and Fees for a Reverse Exchange
In a Reverse Exchange, where the replacement property is acquired prior to the sale of the relinquished property, the fees are typically much higher than a standard Delayed Exchange. Based on the state that the property is held in and judging by the complexity of the reverse exchange, it is best to plan for fees ranging from $3,500 to $7,500. This fee will of course be dictated by the amount of properties sold or acquired and it’s not uncommon for additional properties to range from $400-$600. In addition to this fee will also be the cost of the Delayed (Forward) Exchange that will complete the transaction, bringing the base line closer to $4,500. Though the total cost of a Reverse Exchange can be significant, keep in mind that it gives the Exchangor the peace of mind that they’ve acquired their ideal property first without the concern of identifying property.
The state where each property is located can also impact the accommodation fee. If the property to be parked with the Exchange Accommodator Titleholder, or EAT, is located in California, the Franchise Tax Board charges $800 for the EAT to do business in California, along with another $70 from the Secretary of State to register the EAT. Each state will typically charge a fee.
This fee structure is similar to a Build to Suit or Construction Exchange and the same general fees should be expected.
We Can Help
Atlas 1031 Exchange has increased their fees once in 16 years. We are competitively but moderately priced. If you have any questions around the fees associated with 1031 exchanges, please don’t hesitate to submit a question or begin your consultation above.
