1031 Exchange - Existing Loan and Depreciation Recapture

[Richard Chang]

Hi all,

I am considering doing a 1031 Exchange of my Duplex Rental Property which has been straight line depreciated for 25 years. with an existing loan of about $250K.

1. If I understand correctly, the depreciation capture ( estimated $250K)  is not triggered by a properly executed 1031 exchange and is deferred. Thus avoiding/deferring  capital gain taxes and depr. recapture.

2.  How is the $250K Loan proceeds handled in the target replacement property.

For simplicity, assume the Duplex sells for $1Million and I buy a replacement property for

$1.1Million. Does this mean I need put on financing on  the replacement property of $250K + 100K = $350K or I could add 100K cash and then finance $250K ?

Please explain how the financing would work in the replacement property ( hopefully I don't have to make up the loan difference with cash ).

Apologies if this has already been answered.

Thanks to all the BP Experts, Rich :)

[Richard Chang]

Originally posted by @Leslie Pappas:

hi Richard- put simply- you need to buy as much property as you sold in an even exchange.  If your relinquished property has a loan, then your replacement property must also have a loan, or you need to bring the loan amount to the transaction in cash- which practically no one ever does.

I exclusively help people with replacement property in exchanges.  They have loans in place and are readily available.  Please let me know if you would like to chat.  Good luck.

 Hi Leslie,

So, if the replacement property has a loan of 200K and my relinquished property has a loan of $250K, a 50K difference, then how does it work out to create an additional 50K loan ?

I don't understand, how this works. It seems that the ( existing bank ) loans are NOT being paid off in both properties ? 

Thanks for your help, Rich