Refi + 1031 Exchange: How is it treated?

[Rich Jordan]

CPAs of BP,

If I cash-out refinance one of my apartment buildings in, say, year 2...

...does that change my basis if I attempt to 1031 Exchange down the road, say, in year 4?

If not, am I expected to come up with that equity that I had already pulled out and deployed into other projects?

I imagine this is a simple answer one way or the other. Trying to make sure my repositioning and exit strategies are actually viable. Thanks.

[Mark Creason]

@Rich Jordan

@Dave Foster

Rich,

If you take cash out of a refinance, 2 years before sale, you would not have to place that cash into a deal.  For instance, you buy for 100k cash, several years later you refinance for 150k, then 2 years later you sell for 200k paying off 150k, you would need to reinvest 50k cash into your 1031 but purchase at least 200k for your 1031.  You could fill that 150k either with cash or debt.  If you were to change your refinance to 2 months before selling, you might have issues with the IRS.  They frown on a refinance right before sale.  Strangely, they are less concerned with a refi after your 1031.  Thought it was worth bringing up the short term refi.

Mark