Many people ask if they can pay their legal fees out of the proceeds from the sale of their old relinquished property in a 1031 exchange.
Fees Related to Your 1031 Exchange
The answer to the question is yes, if the legal fees relate to your 1031 exchange or relate to the real estate matter. However, you can’t pay unrelated legal fees out of the 1031 sales proceeds. For example, if you were doing estate planning or had a criminal action unrelated to your 1031 exchange – those cannot be paid out of the net proceeds. You can’t pay legal fees unrelated to your transaction.
The treasury regulations state that you can pay ordinary, standard, customary transactional expenses out of the exchange funds and certainly your legal fees related to the exchange are ordinary and customary.