1031 Exchange to a lesser value property
Hi, I have some questions on 1031 exchanges that I need to know before I make my next investment decision and I'm hoping somebody can help me with. Here's my situation:
I have two investment properties: A condo which I bought for $95K free and clear in 2009 and used it as a rental property. I later on did a cash-out refinance for $125K in 2016. Now I have a mortgage of $125K and the condo is worth around $325K. Is it allowed for me to use 1031 exchange to purchase a duplex for around $200K? Assuming after all the fees and costs associated with the exchange, I still have to pay $25K out of pocket. Will I have to pay an additional capital gain tax?