# Down payment question

3 Replies

Still new to 1031s so excuse what might be a easy question to answer. I'm struggling understanding how to determine what you can buy with a 1031. I know the purchase price has to equal the sell price or greater but I'm confused on what is used for the down payment of the new building. Say I sell for \$500k but have equity to loan at 50/50. So I have \$250k cash and \$250k loan left. Even though I have to use the whole \$500k valuation for the 1031 purchase I can only use the \$250k cash towards the down payment right and refinance the old loan into the new loan for the new purchase?

@Nik Moushon It's very straight foward if you think of it as a two part rule.  In order to defer all tax you must:

1. Use all of the proceeds from the sale in the purchase or purchases.

2. Purchase at least as much as your net sale.

In your example you sold for \$500K and had net proceeds of \$250K.  So if you want to defer all tax you purchase at least \$500K and use all \$250K of proceeds to do that.

You technically do not have to replace the debt if you have access to other cash resources.  But most people don't.  So they use the \$250K as a down payment for the \$500K property.

Buy as much as you sell - and use all the proceeds.  That's all you must do.

I think you are asking how much of a house you can purchase with the proceeds of a sale.

This question is 2 parts

1) What is the equity in the house
In your example it looks like it is \$250,000(\$500,000 selling price less \$250,000 mortgage amount).

2) The next step is what you qualify to purchase and the LTV requirements of the lender.
If the lender requires 80% loan to value you can purchase \$1,250,000
If the lender requires 75% loan to value you can purchase \$1,000,000

Thank you @Dave Foster & @Basit Siddiqi

I thought as much. I guess I'm just second guessing myself too much on this and making it more complicated than it should be.