Does paying off a HELOC count as a 1031 exchange?

[Annie G.]

Hi All, 

Does paying off a HELOC count as a 1031 exchange? As a theoretical, if I took out a HELOC on my primary residence, used that capital to purchase, rehab, & then sell an investment property, could I use the profit to pay back my HELOC tax-free?

On a similar vein, capital pulled from a cash out refinance is not taxed, correct? Theoretically I could use a HELOC to Buy-Rehab-Refi, and use the capital from the refinance to pay back the HELOC without facing any capital gains taxes, correct? My understanding is that technically there are no capital gains, as it's just wealth shifting within your portfolio.

Do I have this sorted out correctly in my mind?

[Christopher Phillips]

@Annie G.

A 1031 exchange is when you use a middleman to move proceeds from one investment sale to purchase another investment property to avoid capital gains. You can't use it for a personal residence, and you can't ever touch the funds, which is why you have a third party handling the proceeds.