Cash out Refinance on a 1031 Exchange

[Auria Styles]

Hi,

Apologies if this question has been asked and answered on another thread.  I am thinking of doing a 1031 exchange on an investment property I currently own and then doing a cashout refi on the replacement property for a downpayment to purchase a primary residence, which will likely be a duplex. Is this allowed under the 1031 rules? I live in the Bay Area where the rents would more than cover the original replacement property mortgage, refinanced mortgage and still leave some residual cash flow. Are there any holding periods required?

Thank you for any insights!

AS

[Dave Foster]

@Auria Styles, a refinance of a property before you sell and do a 1031 can be looked at as taking profit and runs a risk of being disallowed.

However, a refi immediately after a 1031 is complete is looked as as borrowing against equity. So your plan is the right one - Sell, do the 1031, then refinance - Perfect.  

The added bonus to what you are contemplating is that the new primary residence is not part of the exchange.  It comes from the refinance so you would have no holding periods on it prior to being able to move in.