Some of the transactional costs paid by the taxpayer related to the exchange reduce the realized gain and recognized gain of the taxpayer and increase the tax basis of the replacement property. These costs are referred to as 'exchange expenses.' Other transactional items typically found on a closing statement are 'nonexchanges expenses' that do not reduce the amount realized or recognized and are not added to the basis of the replacement property. Beware, these costs may result in taxable boot. Nonexchange expenses debited to the taxpayer and paid with exchange equity will be taxable boot, but items credited to the taxpayer (e.g., prepaid taxes or dues) will be treated as cash paid by the taxpayer and can offset the taxable boot from the nonexchange expenses debited to the taxpayer.
Some of the more typical transactional costs and their treatment are:
| Transactional Costs | Qualified Exchange Costs |
Non-Qualified Exchange Costs |
|---|---|---|
| Commission | ||
| Closing Costs | ||
| Title Fees | ||
| Title Insurance | ||
| Express & Delivery Charges | ||
| Exchange Fee | ||
| CPA & Attorney Costs | ||
| Transfer Taxes | ||
| Recording Fees | ||
| Property Taxes | ||
| Insurance Premiums | ||
| Utilities Charges | ||
| Association Fees | ||
| Mortgage Interest | ||
| Loan Fees, Points, and Costs | ||
| Mortgage Insurance | ||
| Lender's Title Insurance | ||
| Appraisals | ||
| Lender-required Reserves | ||
| Security Deposits | ||
| Prepaid Rents or Prorations |