Taking additional cash from a 1031 exhange

[Nicholas Dillon]

I am curious of something. If you sell a property, and do a 1031 exchange with the proceeds, but don't need all the proceeds for the down payment of the next property, are you taxed on the additional profit that isn't part of the exchange? Thanks for the information.

[Dave Foster]

@Nicholas Dillon, what @Dominic Mazzarella said.  Your requirements to defer all tax are to purchase at least as much as your net sale.  And to use all of the net proceeds in the purchase or purchases.  Any amount you purchase less than you sell.  Or any amount of cash you take out from the exchange are considered to be profit.  And you are taxed on it.

the easy answer to your situation is to complete the full 1031 exchange. Use all of the proceeds and take a smaller loan initially. Then as soon as the 1031 is complete do a cash out refi, or a second mortgage or LOC on the property. These are not taxable events.