1031 workaround

1 Reply

Had this question asked at a forum. Scenario: Seller owes $500k on a $5mm property, wants to sell and 1031 into like property but wants $1mm in cash without conventional refinancing (prepay) and without being penalized through the 1031. Can a relative lien the property and upon sale and upon sale the new loan would essentially provide cash out?normal exchange?

@Christophe Glynn

Unfortunately that's tax fraud.  We always caution against even any kind of legitimate refinance/encumbering activity right before sale.  It's too easy to construe as an attempt to evade taxes.  In this case the paper trail would unravel quite quickly and both parties would be in jeopardy.

However if the seller were willing to put the whole 4.5mm into a new property worth at least 5mm there should be ample equity to then take out an LOC or other debt instrument against the new property.