Thank you to all that have discussed this topic but it seems that there are differ opinions on the topic of a using funds from an investment property's HELOC as a down payment on additional investment properties. If you were to 1031 this investment property an the investment property's HELOC funds are spent, would they have to be paid back before the 1031 can be executed?

My Scenario:

Multi-Family Investment Property
Value - $500,000
Loan - $200,000
HELOC Balance - $50,000

(A) If I were to sell the investment property in a 1031 Exchange, would the $50,000 HELOC be paid off at closing, leaving a $250,000 gain that I can then put toward the new property in full?

OR

(B) Would I have to pay off the $50,000 HELOC first, sell the property, leaving me with a $300,000 gain to be used in full toward the new 1031 property?

Several post point toward using your HELOC on your existing multi-family for the down payment on another multi-family and use the 1031 to build up on your original investment property. If you cannot do this then option A would never make sense?

Thanks in advance!
Eric