Replacement Property bought at less than sold property

[David Ellis]

I have another scenario to discuss. Before that, yes I'm doing a 1031 exchange and the funds are in the account now using an intermediary. So here is the scenario:

Sold Property for $85,500, original purchase price was $86,000. Outstanding mortgage of $39,000 paid off at closing. Closing costs around $8,000. About $38,500 net proceeds.

New property bought for $55,000. Will spend another $20,000 to fix the property. No loans taken out.

The letter from the 1031 exchange states "In order to defer capital gains,

your approximate target replacement value should likely equal or exceed $85,500. This amount includes any debt which was paid off upon sale of the relinquished property as well as the $39,815.15 of cash we are holding in the segregated QI account for your exchange.

Will I owe any tax on the above property since it' being purchase for less that the sold property or am I good since the purchase price of 55k is more than my net proceeds of 39.8k?