1031 exchanges of equal equity

8 Replies

Hypothetical scenario here. Would it be possible to exchange a property worth 125k with no debt, for a property worth 950k with 825k mortgage?

If yes would I have to qualify with mortgagee to assume the loan or is it possible to assume loans in a 1031 exchange without a personal guarantee? 

Or do I have to find a property that is secured by a non recourse loan?

Thank you

In my opinion under the scenario you presented yes you absolutely can roll that 125,000 into the situation you described above.  A mortgage is a mortgage.  The issues is not whether it is recourse or not as it has no bearing on whether or not you met the 1031 exchange requirements.     So based on what you described above, in my opinion, you absolutely qualify for  a 1031 Exchange

Just as a follow up, you would still need to use all the proceeds from your house you sold by paying down the loan you assume or closing costs that chip away enough to avoid having any boot,

I don't think the property amount/ loan amount qualifies for a non recourse loan, typically they are for 1.5 million and above. If you found a bank that will allow one for that amount the defiantly go for its good luck.

Recourse debt means you personally guaranteed it and the lender can come after your personal assets in the event of a default and in a Non-Recourse loan, it is the exact opposite.

Originally posted by @Rich Hupper :

Hypothetical scenario here. Would it be possible to exchange a property worth 125k with no debt, for a property worth 950k with 825k mortgage?

If yes would I have to qualify with mortgagee to assume the loan or is it possible to assume loans in a 1031 exchange without a personal guarantee? 

Or do I have to find a property that is secured by a non recourse loan?

Thank you

Hi Rich,

Yes, absolutely.  You have traded up in value from $125K to $950K and you have reinvested your equity of $125K.  The difference has been paid for with the mortgage.  It does not matter whether you get a new mortgage or assume the existing mortgage or do a seller carry back note, and it does not matter whether it is a personal guarantee, recourse, non-recourse or other.