Costs for Unpurchased replacement property

[Ryan Christians]

I have been reading the IRS code and regulations and am not seeing any guidance.  If the intent was to purchase three properties and two closed, one didn't close - what happens to the due diligence costs for the unpurchased property (appraisals, inspections, etc.)?  I have calculated the realized gain and recognized gain and don't need assistance with that.  My hope was I could use the due diligence costs for the property that wasn't purchased to either offset some boot or at least add to my basis in the replacement property.

Thanks for any help.

[Bill Exeter]

Hi @Ryan Christians, 

The due diligence costs were not part of or related to the replacement properties that you acquired through your 1031 Exchange, so the costs can not be paid through the 1031 Exchange or added to the cost basis of the replacement properties acquired.  

They can be written off as investment property expenses depending upon your individual income tax situation.  You would have to discuss with your accountant.