I have often read examples that say "the replacement property acquired in a 1031 exchange must have the same market value as the relinquished property." Is this exactly true as an IRS requirement, or just a convenient short-hand?
The reason I ask is that no one mentions the sale costs (commissions, escrow fees, transfer tax, etc.) for relinquishing a property. For example, one might SELL a property for $500K, pay off the $100K mortgage, and still end up with only $360K (not $400K) in the 1031 exchange account because $40K was consumed by commission, staging, escrow and transfer fees. In this case, could one purchase a $460K replacement property, spending the entire $360K funds in the 1031 exchange account (without touching a penny) and acquire another $100K mortgage and meet the 1031 requirements of having received no boot and acquiring the same amount of debt? Or is one required to come up with an additional $40K (or more) in cash to purchase a replacement property that costs $500K or more?
