Thank you, DianeW777. To be more precise, let me show a simple example similar to my actual case. It was a reverse 1031 exchange:
- My exchange EAT purchased 2 replacement rental properties B & C at $2m total on 2/1/2024. To make this purchase happen, I borrowed $2m personally (the bridge loan) to fund it as a "loan" to the EAT, because in a reverse 1031, the EAT had no money yet so I had to finance it outside of the old property.
- On 4/1, I sold/exchanged the old rental property A for $1.5m, with $500K cost basis.
- On 4/3, the EAT transferred the 2 new property titles to me.
- After the exchange closed, I paid off the $2m loan by 8/1/2024, with a $25K interests. This interest is NOT shown in any HUD statements because this loan was made outside of the closing transaction (e.g. say I borrowed from my siblings).
I think my new cost basis is $500K (from old property) + $500K (buy-up) + $25K (bridge loan interest) = $1,025k, since this interest was incurred BEFORE I acquired the new titles. I assume it cannot be rental expenses, but should be added to the cost basis.
Is this all correct?
Thank you so much!
