Questions from a 1031 Exchange Newbie!

[Kelli Kammermeyer]

Hi everyone, 

Thanks for everyone's help. I am new in the real estate investing game and would love your advice before I make an expensive mistake!

I am looking for a 1031 exchange to sell one property in California / SLO area to multiple properties in other states.

I bought the home for $264K (fully paid, no mortgage). It is in escrow now $685K. 

I plan to invest the gains in multifamily property in another state and generate rental income and also diversify out of CA (as my primary residence is currently also in CA) 

Here are my questions,

#1 Will all the realtor fees, escrow fees, etc, reduce the amount of capital gains I would either have to pay, or put toward the exchange? (I don't yet know the amount left after all the selling costs but it sure won't be $685K)

#2 Can I deduct the closing fees I paid buying my $264K home too since that was also an expense (I never deducted in taxes)? I don't yet know how much of the $685K will be left to me so for now I am guessing $623K.  

#3 If I find a property for the exchange that is $700K, will the new property and future equity raise the taxes to be paid to California upon it's sale?

Thanks

[Dave Foster]

@Kelli Kammermeyer, I couldn't have said it better than @Tom Fidrych and @Scott E. on most of this.

1. In order to defer all tax you must purchase at least as much as your net sale (contract price minus closing costs) and you must use all of the proceeds (net sale minus mortgage pay off) in the purchase or purchases.

2. The expenses to purchase the property you are selling have been added to it's basis. You can't take them out of the 1031 without paying tax, but they do go forward and will ultimately reduce your gain if you ever sell without a 1031.

3. If you're selling more than you purchase it probably will be impacted by a change in state taxation. But you will also receive additional depreciable basis. So you'll get more annual depreciation write off.