1031/Cash Out Question
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I am currently selling a property and the profits incurred need to be funneled through a 1031. My question is better posed as a scenario. I am going to profit 40,000 from the sell of house A. Those profits are then going to be used to purchase a single family dwelling (through the means of a 1031). The SFD's purchase price is 60,000; thus, giving me a balance of 20,000 in which I will seek a note from a financial institution. Is it possible to take a first and a second out at closing. The first mortgage would be the 20,000 and the second could be as high as 60,000, If I went with a 80%LTV. Is this possible with an investment property?
Thanks
The basic requirements of a 1031 exchange include trading up or equal to in value and replacing the value of the mortgage that was paid off on the property that was sold.
What is the sale price of your relinquished property? How much debt did you have on it?
It would initially appear that you are not acquiring sufficient replacement property value in order to completely defer your capital gain tax.
For example, if you sell property for $200,000 with a $40,000 capital gain, you would need to acquire replacement property with a value equal to or greater than $200,000. You also must reinvest all of your equity (you can not pull any cash out if you wish to defer 100% of your capital gain taxes).
[addsig]
flynny,
You should probably talk with a tax guy very familiar with the real estate process for at least the first time, if youmake a mistake the IRS is not very forgiving.
Thanks to both responses. Much appreciated.