Is it possible to 1031 a property and pay back rehab costs?

[Amanda Harding]

I rehabbed a 3 family using a mix of hard money and my own credit. I have been renting it out for the last year and was hoping to cash-out refi to pay back my investors and myself but my appraisal came back too low for me to pay back myself. I am considering selling but would like to 1031 exchange-- is it possible for me to pay myself back for the rehab costs I put on credit if the money isn't tied to a loan? 

[Dave Foster]

@Amanda Harding, If you touch money or purchase less than you sold, the IRS considers that a taking of profit.

However, the way to accomplish what you want tax free would be to complete the 1031 exchange.  And then immediately do a cash out refi of the new property.  A refi is not a taxable event.  So you get the cash you want, defer all tax in the 1031.  And best of all, the tenant is making your mortgage payments.