Must I exchange into property which is debt-free?
I am selling my residential investment property. It is debt-free. I want to exchange into a management-free investment. If I buy property which is leveraged, will there be a consequence in a future 1031 exchange?
For example:
I sell my current property for $3M. I buy a property for $3M +$1M of debt = $4M.
I later sell that property at the same price (to keep it simple) which is still $3M equity and $1M debt = $4M.
My NET sale would be $3M, so it makes sense to me that I would then 1031 exchange $3M into the next property. I would not be required to make a $4M purchase. Is thar correct?
Forgive me if the answer is obvious.