1031 Exchange Question - Using Seller Credit on Replacement Prop

[Jonathan Paz]

Hello.  So I have a question and just wanted to make sure I am in the clear.  I am doing a 1031 Exchange where I sold a condo property I owned free and clear for $144,357, whereby I netted $133K that my 1031 exchange company is holding on to.  Today I found a duplex replacement property that I negotiated a cash purchase price of $145K, with a seller credit of $7,500.  Closing costs are almost nothing with cash purchases, and you even get pro-rated rents and security deposits that cover costs like taxes.  So I am assuming that I will be all in for buying this replacement property for about $138,000 (after title uses the $7,500 credit to basically reduce my cash to close) which is only a couple thousand more than what my 1031 exchange company has.  I find this a HUGE win.  My question is, is it allowed to use seller credit to basically reduce your purchase price, without actually reducing your purchase price?  Reason why I negotiated it that way is because I knew I needed to buy a replacement property for at least the price I sold my property for ($144,357), but I didn't want to pay that much for this replacement property, so I instead had them provide me seller credit which basically does the same thing as reducing purchase price, but at the same time I believe I am meeting the 1031 exchange replacement property requirement.  I just wanted to post this on here and make sure there isn't some rule against using seller credit, and really the only thing that matters is the contracted purchase price of the replacement property being at least same or more than property sold and that your total proceeds are reinvested.  Thanks!

[Bill B.]

The only numbers that matter are net. 

If you sold for $133k after selling costs and you buy a house that costs $138k or $145k it doesn’t matter, they are both more than $133k you actually “sold for”. 

As long as you found a property that justified the $10k in closing costs (so in theory you’re really paying $148-$155k for the new property). Your depreciation will be almost identical as you’re only adding a few thousand to your basis. 

Same is true for the seller if he was doing a 1031 exchange. He’d only have to buy more than the amount he netted after closing costs, not more than the “agreed upon price...”