Acquisition cost refers to the total cost incurred by the taxpayer in acquiring a replacement property in a 1031 exchange transaction. This includes the purchase price of the replacement property, as well as any related expenses such as closing costs, title fees, and commissions paid to real estate agents or brokers.
The acquisition cost of the replacement property is important in determining the amount of the deferred gain that can be deferred in the 1031 exchange transaction. To fully defer the gain, the taxpayer must acquire a replacement property with an equal or greater value than the relinquished property and use all the proceeds from the sale of the relinquished property towards the acquisition cost of the replacement property.
It’s important to note that any costs that are not directly related to the acquisition of the replacement property, such as repairs or improvements, are not included in the acquisition cost for the purposes of a 1031 exchange.