1031 Exchange to pay back a loan for new construction

[James Duffy]

I am currently in the process of completing construction of a new rental property.  The cost has exceeded budget and I would like to sell my existing rental property to pay back the loan I had to take to cover the excess cost of construction.

Can I leverage a 1031 exchange to pay back the loan?

[Dave Foster]

@James Duffy, The way to make this happen would be for you to either refi your current rental and use that cash to pay off the construction.  Or if you wanted to sell that property and do a 1031 exchange anyway you could complete your 1031 exchange and then do a refinance on it after the 1031 is over.

Unfortunately the 1031 exchange is only for the sale and purchase of investment real estate.  Paying down a mortgage on a property you already own does not qualify.