HOA Transfer Fees in 1031 Exchange

[Dave918]

How are HOA Transfer Fees (fees HOAs charge when you buy or sell a property) in a 1031 exchange? I know that HOA dues are not allowed as 1031 Exchange Costs (which makes sense as they are a recurring charge like taxes or insurance which are also not allowed as 1031 Exchange costs). But HOA Transfer fees would seem to be different than HOA dues as they are part of the real estate transaction (like escrow and transfer taxes which are allowed as 1031 exchange costs). How would I deduct the HOA Transfer fees? Thank you in advance for your response.

[tagteam]

Since the property (I presume) is held (or was held) for rental use, I would deduct it if the transfer fee was a nominal amount (e.g., a hundred or even a few hundred dollars).

I find it perplexing that the HOA has a transfer fee for the transferor rather than the transferee (i.e., the buyer). Such transfer fees (aka capital contributions) are typically imposed on the buyer, in which case the cost could be added to the basis.

[Dave918]

Just to clarify - you are saying that I can add this to the adjusted basis of the property being sold in the 1031 exchange with the other transaction costs of the 1031 exchange (such as title charges and escrow fees)?

The HOAs charge both parties in the sales transaction. I don't find it perplexing - it's just HOAs getting all the money they can. I try to avoid buying properties with HOAs for this and many other reasons but sometimes you find a deal that is too good to pass up.

Thank you again for your response.

[tagteam]

Personally, I would deduct the charge as a selling expense since it is required to complete the transaction.

I am not 100% convinced that is the proper treatment but it sure does seem logical because, as I wrote previously, the buyer can certainly add the same charges to the basis of the property.

[Dave918]

They are charging HOA transfer fees to both parties ($200 to the buyer and $200 to the seller for a total of $400). So it's not the same money being deducted twice. So I assume I can add the $200 to the adjusted basis of the house I'm selling as part of the 1031 exchange (with the other transaction costs like escrow and title) and the buyer will add his/her $200 payment to the basis of their new house. Sound logical?

Thanks again.

[tagteam]

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@Dave918 wrote:

Sound logical?

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Yes, exactly.