Pulling out initial down payment...taxed?

[Dustin Beam]

Hello beautiful people of BP,

So, I'm no CPA, but it would seem that if I do not apply my original down payment on a property towards the new purchase, it would not be taxable as it wasn't actually a gain. So if I originally bought a $100k property w/ 20% down, I should be able to pull out that $20k after the sale and not be taxed on it. 

Anyone know if that's kosher with our friends at the IRS?

[Dave Foster]

Wait a sec - @Dustin Beam, You are absolutely correct.  You can withhold whatever portion you want from a 1031 as long as you are willing to pay the tax on that amount.  

the problem is that you get into an argument with the IRS in your scenario.  You say you're pulling out your original investment which would not be taxable.  They say you are pulling out profit first.  It's the same dollar bill.  You say it's original deposit.  They say it's profit.

With a standing army and nuclear weapons guess who wins the argument :)