1031 Exchange Question

[Michael Hoyt]

Can you do a Cash-Out Refinance before you sell a property through a 1031 Exchange? Is there any tax implications? Any info is helpful. Thanks BP community.

[Dave Foster]

@Michael Hoyt, To refinance a property right before a sale and the start of a 1031 is a very dangerous practice and has consistently resulted in exchanges being disqualified if examined.  When a cash out refi occurs prior to a sale the IRS interprets that as a way of inappropriately taking profit.  

However, What @Greg Scott is talking about does hold true if you complete your 1031 and then refinance the property.  When done this way you are not accessing profit. You are borrowing against equity.