1031 money to pay off mortgage ?

Question

Sorry if asked before, but this just came up in conversation and I think I know the answer, but not 100%.

If for example I get 700k from a building (A) that I want to use 1031 Exchange and buy a building (b) that costs 2m, and I get a mortgage for 1.3m can I then sell another building (c) next year for 500k and take that money to pay off part of the 1.3m mortgage on building (b) ?

Assume the 700k and 500k is all Cap Gains and those are the total proceeds I receive from building A & C.

(I'm a small owner in several buildings that are getting sold and I don't really have any control of, or know exactly when they're going to be sold.)

Thanks !

Kyle Kadish · Answer

@AS Chow Any proceeds from building C would be taxed if not used for an exchange. Since you own property b, an exchange into b is not allowed.

Dave Foster · Answer

@AS Chow, You can do that but not using a 1031 exchange on the second sale. You would have to incur the tax on the $500 in order to use it to pay down the mortgage. The 1031 exchange must be a sale of investment real estate followed by a purchase of actual investment real estate. You can't pay down mortgage on property you already own.

1031 money to pay off mortgage ?

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