Can I pay off rental property loan as part of 1031 exchange

Question

Hello all, If one has 2 rental properties, can the funds (gain+principal)  after selling the first rental property be used towards paying off the loan of the second existing rental property?

Dave Foster · Answer

@Jessica Singh,

The 1031 can only be used for the purchase of new investment real estate.  You can't pay off a mortgage on an existing property.  But what you could do is complete the 1031 exchange.  And then refinance the new property to get cash out.  You could then use that cash to pay off the other mortgage.  If there were some advantage in doing that.

But if you're simply not wanting to purchase more real estate then a 1031 is not going to work for you.

Benjamin Weinhart · Answer

Joseph is correct, to qualify for a like-kind exchange, you'd need to use the proceeds of the sale to purchase similar property within a reasonable timeframe in order to not recognize a gain from the sale.

Joseph A Gonzales · Answer

I am not an expert but I do not believe you can do that. You have to purchase a new like mind investment property. I believe you have to purchase not pay off. I would contact a title company or a 1031 company that holds the money, they would know best.

Jessica Singh · Answer

Thank you Joseph, Benjamin and Dave! Very helpful indeed. Thank you for your answers. I understand 1031 won't work the way I was thinking to make it happen.

Can I pay off rental property loan as part of 1031 exchange

Most Popular Reply