The short answer
Read the statement as the record of three things: who received the money, which costs the exchange may absorb, and what the IRS will treat as boot. The proceeds line must run to the qualified intermediary rather than to you, because Reg. section 1.1031(k)-1 treats money you can draw on as received. Commissions, transfer taxes, recording and title charges are transactional items the regulation disregards and that Form 8824 nets against boot. Loan payoffs, prorated rent, security deposits and any cash to seller are where recognized gain comes from.
At a glance
| Proceeds line | Payable to the qualified intermediary; a cash-to-seller figure is boot unless you intend it |
|---|---|
| Disregarded transactional items | Commissions, prorated taxes, recording or transfer taxes, and title company fees, per Reg. section 1.1031(k)-1(g)(7) |
| Exchange expenses on Form 8824 | Reduce line 15 boot first; any remainder is added to basis on line 18 |
| Loan payoff | Debt relief is money received under Reg. section 1.1031(d)-2 unless matched by new debt or cash on the replacement |
| Prorated rent and deposits | Not exchange expenses; they belong outside the exchange account |
| Statement type | A business-purpose loan is outside Regulation Z, so an investor closing often gets a settlement statement rather than a Closing Disclosure |
| Who the IRS reads it from | The settlement agent named on the statement files Form 1099-S |
The seller line carries your name; the proceeds line must carry the intermediary
Your name stays on the deed side of the statement because the regulation lets the intermediary act without taking title. Under Reg. section 1.1031(k)-1(g)(4)(v), an intermediary is treated as having acquired and transferred the property when your rights under the sale contract are assigned to it and every party is notified in writing on or before closing. Expect the assignment and the notice in the closing file.
The money line is different. The exchange agreement limits your rights to receive, pledge, borrow or otherwise obtain the benefits of the funds before the exchange period ends, and the disbursement should show net proceeds wired to the intermediary. Reg. section 1.1031(k)-1(f)(2) treats money as constructively received the moment it is credited to your account or set apart for you, so a wire to your own bank, even by mistake, is the problem described on what happens when the buyer wires proceeds to the title company instead of the QI.
A cash-to-seller line that is not zero is either planned boot or an error. If you want cash out, say so before the statement is drafted; the rules on touching exchange funds during the exchange explain why fixing it afterwards is not possible.
Commissions, title charges and transfer taxes are exchange expenses, and they reduce boot
The regulation names the charges that do not break the safe harbors when they are paid from the proceeds: transactional items that relate to the disposition of the relinquished property or the acquisition of the replacement property and that appear under local standards on typical closing statements, with the examples of commissions, prorated taxes, recording or transfer taxes, and title company fees. That is Reg. section 1.1031(k)-1(g)(7)(ii).
On the return those same items are the exchange expenses the Instructions for Form 8824 tell you to subtract on line 15: the sum of cash received, other property received and net liabilities assumed by the other party is reduced, but not below zero, by any exchange expenses you incurred. Whatever is not used against boot is added to the basis of the property given up on line 18, so it is not lost. The page on closing costs paid from exchange funds lists the usual lines, and exchange fees: deductible or basis covers the intermediary's own charge.
Prorations, security deposits and the loan payoff are not expenses of the exchange
The regulation's first disregarded item is money a seller receives that is not part of the amount realized, with prorated rents as the example. Prorations settle who owned the property on which days; they are income or expense of the rental year, not consideration. Tenant deposits credited to the buyer are the tenants' money passing through. The treatment of each credit is set out on security deposits and rent prorations as boot.
The payoff line is the one that moves the gain. Reg. section 1.1031(d)-2 treats liabilities assumed by the other party, or to which the property is subject, as money received, offset only by liabilities you take on with the replacement property. The Form 8824 instructions put the netting on line 15: liabilities assumed by the other party exceed what you assume, pay in cash or give in other property. The choices are on replace the mortgage or add cash.
Lender charges on the replacement side serve the financing rather than the acquisition; the reasoning for paying them from your own funds is on loan fees and points paid from exchange funds.
A hypothetical statement, read line by line
Hypothetical. A $1,000,000 rental sells with a $50,000 commission, $8,000 of title, escrow and transfer charges, a $300,000 loan payoff, a $4,000 rent proration credited to the buyer and $10,000 of tenant deposits transferred. Net proceeds to the intermediary are $628,000.
The $58,000 of commission and title charges are transactional items: they can come out of the proceeds and will reduce any boot on Form 8824. The $300,000 payoff is money received unless the replacement carries at least $300,000 of new debt or you add $300,000 of cash. The $14,000 of prorations and deposits are neither exchange expenses nor consideration; paying them from your own account at closing keeps the full $642,000 in the exchange and keeps the rental-year accounting clean.
If the replacement costs $1,000,000 with a $360,000 loan and $640,000 from the intermediary, the statement on that side will show $2,000 left over, and that remainder is cash received. Run your own numbers with your CPA before the statement is final.
The replacement statement has to consume both the funds and the debt
On the purchase side the lines you are looking for are the intermediary's deposit, the new loan, any cash you add and the cash-to-buyer line. The intermediary pays the price and the transactional items; what is left after the last replacement closes is returned to you and is boot, as explained on leftover cash after a 1031 exchange.
The form of the statement depends on the loan. 12 CFR 1026.3(a) takes credit extended primarily for a business, commercial or agricultural purpose outside Regulation Z, so a purchase financed with a commercial or investor loan is not required to use the Closing Disclosure that 12 CFR 1026.19(f) prescribes for consumer mortgages. The Instructions for Form 1099-S treat the person listed as settlement agent on a Closing Disclosure or other settlement statement the same way, so the format does not change who reports the sale; that reporting is covered on Form 1099-S and your 1031 exchange.
What to check before you sign
Ask for the draft a day before closing and send it to the intermediary and your CPA together. The state withholding line is covered on which states withhold tax at closing.
- Payee of net proceeds is the intermediary.
- Cash to seller is zero unless boot was planned.
- Commissions, title, escrow, recording and transfer charges are the only items paid from proceeds; prorations, deposits and personal debts are paid outside.
- The loan payoff figure is known so the replacement debt or added cash can match it.
- Any state withholding line shows the exemption form or the amount the intermediary will remit on boot.
Related questions
Can the intermediary's fee be paid from the exchange proceeds without creating boot?
Yes. The intermediary's charge is a transactional item of the exchange, so it can be paid from proceeds and treated as an exchange expense on Form 8824. See exchange fees: deductible or basis for how it lands on the return.
The statement shows the buyer paying off my mortgage. Is that boot?
It is money received under Reg. section 1.1031(d)-2 unless the replacement side carries at least that much new debt or you add the difference in cash. Form 8824 line 15 nets the two sides.
Why is the rent proration credited against my proceeds if it is not part of the sale?
The credit settles rent you collected for days the buyer will own the property. It is rental income already received, not consideration for the property, which is why it should be paid from your own funds rather than reducing the exchange balance.
Should I expect a Closing Disclosure or a settlement statement?
If the loan is for a business or investment purpose, Regulation Z does not apply and the closer may use a settlement statement rather than the Closing Disclosure. Either document identifies the settlement agent who files Form 1099-S.
What if the final statement differs from the draft after I have signed?
Ask for the corrected statement and send it to the intermediary; it is the record the intermediary uses to confirm the amount it holds and the record your CPA uses for Form 8824. A change in the proceeds figure usually means a changed payoff or proration, not a changed sale price.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.
- Reg. section 1.1031(k)-1, Treatment of deferred exchanges (paragraphs (f), (g)(4), (g)(6), (g)(7))
- Reg. section 1.1031(d)-2, Treatment of assumption of liabilities
- IRS, Instructions for Form 8824 (2025), lines 15 and 18
- IRS, Instructions for Form 1099-S (12/2026), Who Must File
- 12 CFR 1026.3, Exempt transactions (Regulation Z)
- 12 CFR 1026.19(f), Mortgage loans, final disclosures (Closing Disclosure)