The IRS views it as taxable income because it’s not being used for the purpose of deferring taxes under the 1031 rules.For example, if you sell a property and only use part of the proceeds for the next investment, the leftover amount (after paying transaction costs, etc.) is taxed.

However, this is not a cash out refi.Cash out refi is when you refinance an existing loan, with another one (i.e replace the loan) where there is enough money left over at the end of the process where you can put some proceeds in your pocket.When it comes to your strategy - just make sure you're being conservative with your numbers on the purchase / rehab if you don't plan on using other proceeds to payoff the HELOC. 

However, an agent that has off market deals is likely flipping or wholesaling themselves so you may only get leftovers. 

The wealthy live where they want, the middle class live where they can afford, the poor live in whatever's left over.

There will likely be some debris left over as the others said.

Trying to match the color that is already on the wall is just about impossible, even with left over paint from the initial painting.

Take the tax free sec 121 first and then 1031 the leftover.

But you can still buy leftover liens from the 2016 sale at 18%.

Leftover funds not reinvested are taxable as "boot."

Double your money on your 60% left over.