1031 scenario question

[Bradley Hendrix]

Hey 1031 experts I have a scenario question for you.

Bought an apartment building with a construction loan of $565,000. The purchase was $375,000 and the rest was used for renovations.

My cost bases in the building will be around $740,000.

I refinanced the building with a $900,000 loan.

I have an offer on the building of $1,400,000

Total capital gains would be about $660,000

So, my question is after selling the property (for easy math) lets say I walk away with $500,000 after paying off the bank loan. When I 1031 the next property do I have to show putting down the whole capital gain amount of $660,000 or just the $500,000?

Thanks

[Bill B.]

You must buy a property that costs at least $1,400,000 with a downpayment of at least $500k to avoid all taxes. Any lower purchase price or any lower downpayment will be considered 100% profit, not a prorated share. 

Ps. You need to make sure you qualify for a 1031. Did you build the building and rent it out and then either own it for a year or two, or an offer or a problem come out of nowhere when you had intended to keep it as rental property for years? You are not allowed to 1031 a flip or a property built specifically for sale. 

Pps.  Hopefully you didn’t just do the cash out refinance. IRS doesn’t like that. Because as you stated if you hadn’t done the refinance you would have had to put down the entire $660k so it looks like you’re trying to pull cash out tax free. Usually you try to the do the refinance after you purchase the replacement property. They like that better.