1031 Exchange - Existing Loan and Depreciation Recapture

[Richard Chang]

Hi all,

I am considering doing a 1031 Exchange of my Duplex Rental Property which has been straight line depreciated for 25 years. with an existing loan of about $250K.

1. If I understand correctly, the depreciation capture ( estimated $250K)  is not triggered by a properly executed 1031 exchange and is deferred. Thus avoiding/deferring  capital gain taxes and depr. recapture.

2.  How is the $250K Loan proceeds handled in the target replacement property.

For simplicity, assume the Duplex sells for $1Million and I buy a replacement property for

$1.1Million. Does this mean I need put on financing on  the replacement property of $250K + 100K = $350K or I could add 100K cash and then finance $250K ?

Please explain how the financing would work in the replacement property ( hopefully I don't have to make up the loan difference with cash ).

Apologies if this has already been answered.

Thanks to all the BP Experts, Rich :)