How Much Do 1031 Exchange Companies Charge? An Overview

how much do 1031 exchange companies charge

Qualified Intermediaries can make about $3.75 a day from interest. This is for every $100,000 they have in escrow during a 1031 Exchange. Even though it seems small, this can add up, showing why it’s important to know all possible costs.

The fees for 1031 exchanges can confuse investors. They are complex because of the services offered and the risks taken. Especially for big or complex deals like Forward, Reverse, and Build-To-Suit 1031 Exchanges. You need to look carefully at all fees to make sure you’re getting a good deal.

For example, the setup fee for a Delayed Exchange is usually between $750 and $1,250. Fees for additional properties range from $300 to $500. Reverse Exchanges, however, have higher setup fees, from $3,500 to $7,500. And extra property fees go from $400 to $600.

Atlas 1031 Exchange kept their fees the same for 16 years. Only changing them once. This shows the value of finding a reliable and affordable intermediary. Their setup fee for forward exchanges is often $750. For more complex exchanges, like Reverse or Build-To-Suit, fees start at about $7,500 and $1,750, respectively.

But it’s not just about the obvious fees. You should also think about the interest earned on escrow funds and per property charges. These can really affect how much you spend in total. When looking at 1031 exchange fees, consider all these aspects to find the best rates for your needs.

Understanding 1031 Exchange Fees

Engaging in a 1031 Exchange can offer tax deferral benefits. But the fees can be complex to understand. The costs mainly depend on your Qualified Intermediary and the specifics of your exchange.

Institutional QS typically charge between $850 to $1,200 per transaction. Non-institutional QS may charge less, from $600 to $800. Both may add around $300 to $400 for each property in the exchange.

The cost of 1031 exchange services includes not just direct fees. It also covers added costs like wire transfers and delivery charges. These extra fees can significantly impact the total cost.

Another big cost is the interest income that QS keep. This income is a big part of their revenue, about two-thirds. So, the upfront costs don’t show the full financial picture. The retained interest adds to the exchange expenses.

Fee Type Institutional QIs Non-Institutional QIs
Set-up/Admin Fees $850 – $1,200 $600 – $800
Additional Property Fees $300 – $400 $300 – $400
Interest Income Varies Varies

On average, a 1031 exchange costs from $600 to $1,200. But complex transactions can increase these figures.

Reverse or Construction Exchanges can cost more, between $3,000 and $8,000. Tax professionals often recommend paying some expenses out-of-pocket. This strategy helps in optimizing tax benefits and reducing taxable gains.

Comparison Of Institutional And Non-Institutional Qualified Intermediaries

The costs for 1031 exchanges can be quite different between two types of middlemen. Institutional qualified intermediaries are often part of big companies like banks. They charge setup fees from $850 to $1,200. This fee usually covers the cost for one sale and one buy, with extra fees for more properties.

Non-institutional qualified intermediaries might be local or nationwide and charge less at the start, around $600 to $800. But it’s important to look at all costs, including fees for trust accounts and transactions. A full review can show what you’ll really pay, whether it’s a local or national QI.

Looking at the average costs, institutional intermediaries might ask for $800 to $1,200 for delayed exchanges. Non-institutional ones usually charge between $600 to $800. For a complex deal like a reverse exchange, the fees can jump to $3,000 to $8,000. This shows the need to check how strong and able the intermediary is.

Consider this detailed look:

Type of Intermediary Setup/Admin Fees Per Property Fees Delayed Exchange Fees Reverse Exchange Fees
Institutional Qualified Intermediaries $850 – $1,200 $300 – $400 (each) $800 – $1,200 $3,000 – $8,000
Non-Institutional Qualified Intermediaries $600 – $800 $300 – $400 (each) $600 – $800 $3,000 – $8,000

Institutional QIs link to big financial institutions, offering more security and broad expertise. Meanwhile, non-institutional QIs may have lower upfront costs and more personal service. But, evaluating their financial health and local law adherence is keen. Lawyers, CPAs, and Certified Exchange Specialists® bring their know-how to both types of QIs.

How Much Do 1031 Exchange Companies Charge?

Figuring out the costs of a 1031 Exchange is key for investors wanting to save on taxes. Usually, the fees for a 1031 Exchange are between $500 and $1,500. This depends on how complex the exchange is and the fees of the qualified intermediary.

Institutional intermediaries generally ask for $850 to $1,200 for each transaction. Meanwhile, non-institutional intermediaries charge lower, around $600 to $800.

There are also other fees to consider, like for each extra property, which can be $300 to $400. These added fees matter a lot in the end cost from 1031 Exchange companies.

Qualified intermediary fees have different parts. Set-up and administration fees are about one-third of their income from these exchanges. The other two-thirds mostly come from the interest earned on escrowed funds. Intermediaries might keep or share this interest, which affects the total cost.

For complex exchanges, expect additional fees for wire transfers or quick deliveries. Being aware of these can help avoid unexpected costs.

Fee Type Institutional Intermediaries Non-Institutional Intermediaries
Set-up/Administrative Fees $850 – $1,200 $600 – $800
Property Administration Fees $300 – $400 per property $300 – $400 per property
Total Typical Costs $800 – $1,200 $600 – $800

Looking into each charge helps investors understand the true costs of 1031 Exchange services. Knowing about the fees in detail makes for a smoother, more budget-friendly investment path.

Allowable Closing Costs On 1031 Exchanges

In the world of 1031 exchanges, it’s key to know what closing costs you can have. These costs include a range of fees you meet in real estate deals. For example, you might pay $5,000 for an appraisal, and inspection fees could be $0.1 per square foot. Recording fees can be as low as $200 or up to thousands, depending on the place.

Attorney fees, broker commissions, and escrow fees also come into play. They can range from 1-2% of the property’s value. Transfer taxes, which are 1-3% of the total value, are allowed too. And title insurance starts at 1%, adding to the total permitted closing costs.

Here is a simple breakdown of common costs:

Cost Type Typical Amount
Total Exchange Fees $600-$1,200
QI Fees $750-$1,250
QI Fee per Extra Property $300-$400
Appraisal for Purchase Contract Around $5,000
Inspection Fee $0.1/sqft
Prorate Taxes Up to 110% of the last known county bill
Recording Fee $200 to thousands
Title Insurance Starts at 1% of the property value
Escrow Fee 1-2% of the total property value
Transfer Taxes 1-3% of the total property value
CRE Broker Commission 4-8% of the total property value

Commercial real estate transactions benefit from knowing what costs are allowed in a 1031 exchange. Owner’s title insurance and real estate broker’s commissions are included. This knowledge helps investors plan by understanding all permitted costs in a 1031 exchange..

Additional Non-Qualified Exchange Fees To Consider

In addition to standard 1031 Exchange transaction costs, investors should be mindful of non-qualified exchange fees. These fees can add to capital gains taxes if not managed well. They play an important role in the overall costs of the exchange process.

For example, loan or 1031 Exchange application fees are non-qualified exchange fees. Loan application fees are usually around $100. A required property appraisal by a lender can cost up to $1,000. Fees associated with debt assumptions are also considered non-qualified. It’s vital to budget carefully to avoid triggering taxable events.

Transaction complexities can lead to more costs, like extra appraisals required by lenders. Lenders do this to protect their interests in big transactions. These additional costs, though small, can add up and affect tax-deferral benefits.

The interaction of capital gains taxes with non-qualified fees highlights the need for careful financial planning. Distinguishing between qualified and non-qualified expenses helps allocate funds wisely. This ensures the benefits of the 1031 Exchange are maintained while minimizing unexpected tax liabilities.

Conclusion

The costs of working with 1031 exchange companies cover a wide range. They include service fees, interest on funds, and real estate closing costs. It’s key for smart investors to grasp these costs. This understanding helps use a 1031 exchange well, saving on taxes and improving investment plans.

Direct fees to Qualified Intermediaries (QIs) are a big part. They help with tax-deferred property deals. Setup fees for regular exchanges usually fall between $850 to $1,200 with institutional QIs. Non-institutional agents might ask for $600 to $800 for similar services. Remember, there are additional charges per property of $300 to $400. Also, reverse or construction exchanges cost more, from $3,000 to $8,000.

Getting through these financial details calls for expert advice. Tax advisors and reliable QIs can guide you. Wise investors always check all costs, both seen and unseen. This ensures they don’t miss anything in their financial planning. With a thorough understanding of these fees, investors can make 1031 exchanges work better for them. They can use these exchanges as powerful tools for saving on taxes and enhancing their investment approach.

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About the author

Nathan Tarrant

Nathan has worked in financial services, marketing, and strategic business growth for over 30 years. He was the founder and COO of a Queens award-winning financial services company based in the UK, and a capital investment company in Virginia USA..

He operated as a financial & alternative investment advisor to delegates of the UN, World Health Organization, and senior managers of Fortune 500 companies in Geneva, Switzerland, after the 2008 financial crash.

As an avid investor, especially in alternative investments, he runs this blog Altinvestor.net, sharing his growing experience and views on alternative investments. You can see Nathan's full profile at his personal website nathantarrant.com
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