1031x and seller repair credit

[Daria B.]

Hi

Repairs were going to be paid for before closing, as the seller having some other time sensitive activities needing to be met, my agent and I decided to grant a seller credit to the buyer for these repairs. Otherwise the hold up of the sale and going back-and-forth we wanted to avoid.

Because it’s now on the closing statement, are these a deductible repair expense like it would have been had it been before closing that would normally just be under schedule E as a repair expense.

Cheers.

[Bill B.]

@Daria B. it sounds like you were the seller, you have the credit, and you did a 1031. If that’s correct, here’s my non-expert opinion. 

You lowered the amount you had/have to buy with your exchange. (You only have to buy as much as you net from the sale, this lowered your n.) 

You reduced the amount of untaxed capital gains you’re carrying forward but you didn’t create an expense or a deduction today. I BELIEVE this credit would be treated just like covering buyer’s closing costs. 

Certainly talk to your CPA or your 1031 QI, both of which should have had a 10 second explanation at the tip of their tongue. But that’s how I would expect it to play out.