does replacement debt have to match debt on relinquished property?

[Ryan Fox]

The property I want to relinquish in a 1031 exchange has a $75,000 mortgage on it.  On the replacement property, does the debt have to be a mortgage as well, or can I use a home equity line on my primary residence to constitute the debt on the replacement property?   Thanks in advance!

[Dave Foster]

@Ryan Fox, You don't have to specifically replace the debt.  You must purchase at least as much as your net sale and use all of the net proceeds to do so.  Any remaining money needed after using all of your proceeds can come from any source - your own funds or borrowed.

Most people don't have money to make up a paid off mortgage.  So they simply take out new debt to cover the difference.  But it's not a requirement.  As a matter of fact, using your own funds which might be making 2-3% instead of borrowing at 6-7% makes a nice little interest arbitrage doesn't it.