1031 exchange Net Sale Proceeds

[Matthew Mummert]

I'm new to posting on BP, but have listened to the podcast for months.  My wife and I purchased some land 9 months ago below marked value.  We improved the land over the past 9 months with the goal of building on it, but have now changed our minds and are looking to sell it and begin investing in rental property.  

My questions is about calculating the Net Sale Proceeds for the 1031 exchange.  We used a line of credit for the down payment, improvement expenses, and some operating expenses.  Does the line of credit qualify as debt that can be paid off from the Gross sale price?  Or will I have to take cash out, pay taxes on it, and then pay off the line of credit?

Example:  Original purchase price $240k, Sale Price $340k, Mortage pay off $200k, Line of Credit pay off $40k.

Do the Net Sale Proceeds equal $100k (line of credit qualifies) or $140k (line of credit does not qualify)?    

Thanks

[Wayne Brooks]

Uyeah, the line of credit may be tricky, even if paid off directly from escrow, since it was not mtg on the property and could be viewed as cash in....@Dave Foster will know.

Also, the 1031 is for “property bought as an investment, or in a business”.....not to build a primary home on or for flipping/developing, but you might could wiggle around that one maybe.