Payoff loan prior to selling property in 1031 exchange

[Kevin Kershisnik]

So I’m in a bit of a predicament. We are selling an existing rental property and want to do a 1031 exchange to avoid the tax consequences. One property that we are looking at to invest in as part of the 1031 exchange may not be certified for occupancy within the 180 day timeframe. That means we may have to pay cash for it for which we will take out a mortgage after the property is completed. The problem is it will have to be an all cash deal at first since nobody will lend on an incomplete property, but there is currently a loan on the property being sold. Can I pay off the loan on the sale of the current property before escrow closes so that I avoid having to take out a loan on the new property?

[Wayne Brooks]

Yes you can but that Forces you to use the additional cash from the sale.  I’m not sure how paying off th loan would help....just use that money instead toward the all cash purchase.  You can bring additional cash to the table to purchase the replacement property, you’re not limited to the cash generated from the sale of the current property.