we will be doing a sec. 1031 exchange. but in our written contract to sell the "relinquished" property we are required to demolish an ancient building, haz-mat fees, and re-survey the land boundaries. this will be about $15,000.00. total gross sales price is $575,000.00. no mortagges on property.

how do we "handle" these costs/expenses?

should we "front money" them and pay out-of-pocket, and be done with them, or somehow arrange with Exeter as the "Qualified Intermediary" (QI), to take proceeds from the closing and pay these?

does the IRS on form 8824 care how costs/expenses like this are handled?

we want to be able to deduct these costs/expenses to reduce the gross sales price to a "net" sales price to exchange for a replacement proeprty.

what's the best way to do this and maximize tax savings? 

Thanks, Exeter!

woody:

we will be doing a sec. 1031 exchange. but in our written contract to sell the "relinquished" property we are required to demolish an ancient building, haz-mat fees, and re-survey the land boundaries. this will be about $15,000.00. total gross sales price is $575,000.00. no mortagges on property.

how do we "handle" these costs/expenses?

These expenses are not routine closing costs, so they will create taxable cash boot if you have them paid through escrow/closing.  You can avoid taxable cash boot if you contribute the same amount into the closing from your own pocket or you pay the costs/expenses directly. 

should we "front money" them and pay out-of-pocket, and be done with them, or somehow arrange with Exeter as the "Qualified Intermediary" (QI), to take proceeds from the closing and pay these?

The 1031 exchange Qualified Intermediary can not pay the expenses out of the 1031 exchange account under any circumstances without creating constructive receipt of your 1031 exchange funds and jeopardizing the entire 1031 exchange.  You can have then paid by the closing agents if you are O.K. with creating taxable boot and paying the small amount of tax on the cash boot amount.  

does the IRS on form 8824 care how costs/expenses like this are handled?

These would not be reported on IRS Form 8824.  They would be reported on IRS Form 4797 as gain. 

we want to be able to deduct these costs/expenses to reduce the gross sales price to a "net" sales price to exchange for a replacement proeprty.

These are ordinary expenses or operating expenses, but they are not closing costs and will not reduce the sales price to a net sales price.  You would probably be better off to pay them with out of pocket cash and deduct them as operating expenses. 

what's the best way to do this and maximize tax savings? 

Thanks, Exeter!

You are most welcome.  We look forward to working with you on your 1031 exchange.