using 1031 funds to purchase

[Nicolas Bowers]

I am selling a turn key property for cash. Should net around $110k. I am interested in doing a BRRRR but I am also considering buying 2 turn key "Subject To" deals. Would purchasing a two properties creatively "count" toward the 1031 exchange funds I need to deploy? Thank you

[Dave Foster]

@Rivers Fike, No.  The requirement to defer all tax is to purchase at least as much as your net sale.  And to use all of your net proceeds in the purchase of your replacement.  If you are buying a sub 2 then the norm is that you pay the seller an amount (like a down payment).  And you assume the loan.  If you sell for 300K with a $200K mortgage then you have $100K in cash to be used to purchase at least $300K of real estate.

In a sub 2 situation you may give the seller the $100K of cash and assume the rest of the loan for $300K.  Did you use all of your cash?  Yep.  did you purchase at least as much as you sold?  Yep.  All tax deferred.

In a situation where you don't give the seller anything and simply assume the loan then you may assume a loan for $300K.  But you still have to use all of your cash in the exhcange account.  The answer here would be to use that $100K to purchase another property.  If you take the $100K you will pay tax on it.