1031 to pay back HELOC?

[Brittany R.]

If a HELOC is used for a down payment on a replacement investment property, can it be paid back (within the 180 days) once the old property has been "relinquished"?

If this doesn't make sense I can try to clarify, we are learning as we go!

[David M.]

@Brittany R.

Are you asking if you take hloc on your investment property that is being 1031'ed?  It will somehow have to be settled when the property is sold so that the property can be conveyed with clear Title, unless somehow the buyer will accept and encumbered property which is pretty unlikely.

[Dave Foster]

@Brittany R., Debt doesn't matter.  As long as you purchase at least as much as your net sale and use all of the proceeds from the sale in your purchase you will defer all tax in the 1031. What you do with the debt after that is up to you.  If you're asking can you use your own proceeds (the heloc) to purchase the replacement property and then after that sell your old property and use the proceeds from the sale to pay down the heloc - that's a hard no without a complex and expensive Reverse exchange.!  The 1031 order must be that you close your sale before you take title to the new property.

[Brittany R.]

Quote from @Dave Foster:

@Brittany R., Debt doesn't matter.  As long as you purchase at least as much as your net sale and use all of the proceeds from the sale in your purchase you will defer all tax in the 1031. What you do with the debt after that is up to you.  If you're asking can you use your own proceeds (the heloc) to purchase the replacement property and then after that sell your old property and use the proceeds from the sale to pay down the heloc - that's a hard no without a complex and expensive Reverse exchange.!  The 1031 order must be that you close your sale before you take title to the new property.

That last part is exactly what I was looking for in terms of possible or not... thank you for clarifying!

[Bill B.]

You could use a heloc for a large EMD. Something that convinces the seller you will close. You just can't take title. Probably even for a short term rental with an option to buy when your property sells.