paying off financing used for renovation prior to 1031

[David Quinn]

Hello, I have a duplex in Boston I've owned for around 17 years.  Currently in the middle of a large renovation with the goal of converting to two condos and selling individually.  I owe roughly 400K on the mortgage and should get somewhere around 900k - 1.1M for each unit.  Purchased for 560K originally; obviously quite a bit of depreciation.  Lets assume my basis is roughly 300k or so (before the renovation).  The renovation will run roughly 400-500K.  I'm using 2 HELOCs to fund the renovations.  One is connected to this property, the second to another property.  As I understand 1031 rules, I must purchase the new properties using all the proceeds of the sales of the condos (if I want to defer all taxes).  

My first question is - if I have to use all the proceeds toward the new properties, how do I pay off the HELOCs I'm using to fund the renovation?

Second, separate question - can I 1031 into a property I intend to flip?  Is there a minimum time I must own the new property before selling?

Thanks for any help!!  - Dave

[Dave Foster]

@David Quinn, There's no issues with you improving your property now and selling it using a 1031.  The issue is purchasing a property you intend to flip.  A property you purchase to complete a 1031 with must be one that you intent to hold for productive use.  Most folks feel comfortable with a hold of over a year.  Two years would be fine.

You'll have a tough time paying off those helocs on other properties.  They must be tied to the property you're selling in order to be paid off on the settlement statement.  Check with your accountant.  Depending on your entity structure you may be able to loan money to yourself attached to that property via a mortgage.  If so then that mortgage has to be satisfied at the sale.  And then you can repay your heloc.