Skip to content
×
Pro Members Get
Full Access!
Get off the sidelines and take action in real estate investing with BiggerPockets Pro. Our comprehensive suite of tools and resources minimize mistakes, support informed decisions, and propel you to success.
Advanced networking features
Market and Deal Finder tools
Property analysis calculators
Landlord Command Center
ANNUAL Save 16%
$32.50 /mo
$390 billed annualy
MONTHLY
$39 /mo
billed monthly
7 day free trial. Cancel anytime
Tax, SDIRAs & Cost Segregation
All Forum Categories
Followed Discussions
Followed Categories
Followed People
Followed Locations
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback

Updated almost 5 years ago on . Most recent reply presented by

User Stats

37
Posts
4
Votes

Using Personal HELOC to buy a flip house

Posted

I recently used a personal HELOC to purchase a flip house then rehabbed and sold the house. I decided to use a 1031 exchange for the tax advantages and our accountant told us we can't use any of the proceeds to pay back our personal HELOC. Have any of you ever used the proceeds to pay back your personal HELOC and how did you do it?

Most Popular Reply

User Stats

9,120
Posts
9,455
Votes
Dave Foster
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
9,455
Votes |
9,120
Posts
Dave Foster
  • Qualified Intermediary for 1031 Exchanges
  • St. Petersburg, FL
Replied

@Christine Krizenesky, If you are doing a 1031 exchange Then you cannot touch any cash from the sale unless you pay tax on it.  1031 proceeds can only be used to purchase replacement property.  They can also be used to pay closing costs and mortgage payoffs - but only on the property being sold.  That heloc is not on the subject property.  So if you try to pay off that heloc you've touched the money, yo'u're using 1031 proceeds for something other than the purchase of new real estate and it is taxable.

It's perfectly legitimate for you to perceive that you are simply paying back expenses.  And you are - sort of.  But when you do a 1031 exchange the IRS says that the first dollar you touch is a dollar of profit.  So what you think of as paying back expenses the IRS calls taking profit.  That's why it's taxable.

Good questions from all on can you even do a 1031.  If your intent was to hold that property for productive use and something compelling and demonstrative caused you to change your intent then the 1031 would be appropriate.  If you're intent was primarily for resale - fix n flip then the 1031 would not be appropriate.  But it is your intent and how you can demonstrate that is the determining factor.

  • Dave Foster
business profile image
The 1031 Investor
5.0 stars
103 Reviews

Loading replies...