--- title: What 1031 Exchange Expenses are Added to Basis? description: Learn what 1031 exchange expenses are added to basis. image: https://www.realized1031.com/hubfs/what-1031-exchange-expenses-are-added-to-basis.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # What 1031 Exchange Expenses are Added to Basis? Posted Jan 14, 2024 ![A picture of a hand typing into a calculator trying to calculate 1031 exchange expenses.](https://www.realized1031.com/hs-fs/hubfs/what-1031-exchange-expenses-are-added-to-basis.jpg?width=1254&height=836&name=what-1031-exchange-expenses-are-added-to-basis.jpg) When it comes time to sell real estate you might use for business or investment, you could defer capital gain and depreciation recapture taxes with help from [26 U.S. Code § 1031](https://www.law.cornell.edu/uscode/text/26/1031) – “Exchange of Real Property Held for Productive Use or Investment.” When you follow the IRS rules for a 1031 exchange, you “swap” real estate you currently own ([relinquished property](https://www.realized1031.com/blog/what-is-relinquished-property)) into different real estate ([replacement property](https://www.realized1031.com/blog/what-is-a-replacement-property)). While the like-kind exchange can be straightforward, it comes with [stringent deadlines](https://www.realized1031.com/blog/can-1031-timelines-be-shortened), regulations, and requirements. One of those requirements is understanding the basis of the relinquished and replacement properties. Also essential? Knowing what exchange expenses can be added to the basis of the replacement property. ### Quick Review: Defining the Basis Whether your real estate is for personal use or has a role in your investment strategy, you’ll run into the [concept of “basis](https://www.realized1031.com/glossary/basis).” Sometimes known as “cost basis,” this is the amount you invest in a property plus out-of-pocket expenses or closing costs related to the property’s acquisition. These additional costs might include broker commissions, title insurance fees, or closing costs. Then, there is the adjusted basis, which happens once you own the property. This might include capital improvements, depreciation deductions, or casualty or theft losses. To preserve the deferred capital gain for potential recognition in the future, [that basis carries over](https://www.realized1031.com/blog/how-do-you-calculate-basis-for-a-1031-exchange) from the relinquished property to the replacement property. ### Expenses and the Replacement Property Basis However, additional expenses can be added to the basis of your replacement property or properties. In addition to the purchase price, these [might include the following](https://www.realized1031.com/blog/what-are-allowable-1031-exchange-expenses): - Transfer taxes, which states or municipalities might impose to transfer property titles or other paperwork - Legal fees, as assessed by your attorney - Brokerage commissions if you use a real estate broker to help handle the exchange - Qualified Intermediary fees, which are paid to the QI that manages your like-kind exchange - Land surveys, appraisals, or inspections that might be needed during the escrow/due diligence process - Other costs, including title insurance, escrow, and recording fees ### Record and Experts It’s essential to keep thorough records of all costs and expenses involved with the exchange, even after it’s closed. Those expenses will be necessary when you sell that replacement property down the road. Given the many expenses connected with the purchase, sale, and ownership of property, it’s essential to understand what costs are assigned to basis and which are reported as other expenses. Furthermore, many states have their own laws pertaining to real estate taxes and like-kind exchanges. Those state laws – and the federal laws as well – are always subject to change. Because of this, it’s essential that you work with tax experts and qualified intermediaries who are familiar with these regulations to help ensure a successful 1031 exchange. This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Costs associated with a 1031 transaction may impact investor's returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. Download The Guide To 1031 Exchange [![The 1031 Investor's Guidebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-250.png?width=250&height=250&name=1031-Exchange-eBook-250.png "Tackle the art and science of ...") ](https://www.realized1031.com/blog/what-1031-exchange-expenses-are-added-to-basis#blogform) Download eBook ---   --- ### The 1031 Investor's Guidebook ![Download The Guide To 1031 Exchange](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-550.jpg?width=550&height=650&name=1031-Exchange-eBook-550.jpg) Tackle the art and science of completing your 1031 exchange. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "When it comes time to sell real estate you might use for business or investment, you could defer capital gain and depreciation recapture taxes with help from 26 U.S. Code § 1031 – “Exchange of Real Property Held for Productive Use or Investment.” When you follow the IRS rules for a 1031 exchange, you “swap” real estate you currently own (relinquished property) into different real estate (replacement property). While the like-kind exchange can be straightforward, it comes with stringent deadlines, regulations, and requirements. One of those requirements is understanding the basis of the relinquished and replacement properties. Also essential? Knowing what exchange expenses can be added to the basis of the replacement property. Quick Review: Defining the Basis Whether your real estate is for personal use or has a role in your investment strategy, you’ll run into the concept of “basis.” Sometimes known as “cost basis,” this is the amount you invest in a property plus out-of-pocket expenses or closing costs related to the property’s acquisition. These additional costs might include broker commissions, title insurance fees, or closing costs. Then, there is the adjusted basis, which happens once you own the property. This might include capital improvements, depreciation deductions, or casualty or theft losses. To preserve the deferred capital gain for potential recognition in the future, that basis carries over from the relinquished property to the replacement property. Expenses and the Replacement Property Basis However, additional expenses can be added to the basis of your replacement property or properties. In addition to the purchase price, these might include the following: Transfer taxes, which states or municipalities might impose to transfer property titles or other paperwork Legal fees, as assessed by your attorney Brokerage commissions if you use a real estate broker to help handle the exchange Qualified Intermediary fees, which are paid to the QI that manages your like-kind exchange Land surveys, appraisals, or inspections that might be needed during the escrow/due diligence process Other costs, including title insurance, escrow, and recording fees Record and Experts It’s essential to keep thorough records of all costs and expenses involved with the exchange, even after it’s closed. Those expenses will be necessary when you sell that replacement property down the road. Given the many expenses connected with the purchase, sale, and ownership of property, it’s essential to understand what costs are assigned to basis and which are reported as other expenses. Furthermore, many states have their own laws pertaining to real estate taxes and like-kind exchanges. Those state laws – and the federal laws as well – are always subject to change. Because of this, it’s essential that you work with tax experts and qualified intermediaries who are familiar with these regulations to help ensure a successful 1031 exchange.", "articleSection" : [ "1031 Exchange" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2024-01-14T17:13:21+0000", "datePublished" : "2024-01-14T17:13:21+0000", "description" : "Learn what 1031 exchange expenses are added to basis.", "headline" : "What 1031 Exchange Expenses are Added to Basis?", "image" : { "@type" : "ImageObject", "height" : 836, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/what-1031-exchange-expenses-are-added-to-basis.jpg", "width" : 1254 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/what-1031-exchange-expenses-are-added-to-basis", "name" : "What 1031 Exchange Expenses are Added to Basis?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/what-1031-exchange-expenses-are-added-to-basis.jpg" } ```