1031 Home With Low Equity

[Andrew Luong]

Hey Team,

Tried doing some research on this and haven't quite come up with concrete answers.  Could you help me understand what happens with a 1031 if a seller has low/no equity in the home?  Here's an example:

• Purchase - $100k
• Mortgages:

1. 1st - $100k
2. 2nd - $100k
3. Equity = $0

• Sale Price - $200

How would the 1031 be assessed if the sellers are bringing cash to close?

Cheers!

Andrew

[Dave Foster]

@Andrew Luong You're still going to have the reinvestment requirements of purchasing at least as much as your net sale (200K) and using all the net proceeds (0) in the next purchase.

The 1031 is agnostic to the debt.  And debt does not impact gain.  You've accessed the gain through the refinances.  So you're only option really is to 1031 because you'll either use  roughly $30K  to pay tax.  Or you can use the $30K  to purchase another $200K property to satisfy your exchange.