1031 and Equity Line Payoff

[Dan Cox]

Hi, I own a rental property...single family residence. I have owned since 2003. I understand when I use an exchange company to facilitate sale/exchange,  when property is sold the first mortgage is paid. I have an equity line on the property I attained to make repairs/upgrades to enhance the sale proceeds. Can the exchange facilitator also pay off the equity line on sale? So the net proceeds, to apply toward new exchanged property loan, will be the result of paying off first and equity line..and still be fully considered a 1031 exchange with no tax consequence from paying off both loans? All cash from equity line was used in the rental. Thanks for answering. I appreciate the time. dan

[Dave Foster]

@Dan Cox, It's actually the title company or closing attorney who will make those payoffs as part of the  regular closing.  Any loan secured by the property will be paid off and the net cash after that and all closing costs have been paid  is transferred to the exchange facilitator.  

So your two reinvestment targets to defer all tax in the 1031 will be to purchase at least as much as your net sale (contract price less closing costs and commissions) and use all of the net cash ( net sale minus the mortgage pay offs) in the next purchase.  As long as you do those two things you'll defer all tax.