In a reverse 1031 exchange, can you use the relinquished property as collateral for the down payment on the replacement property?
In short, yes. You can use the relinquished property as collateral for the down payment on the replacement property provided all the equity that is tapped out of the relinquished property is in fact applied to purchase the parked replacement property.
You do not want to take equity out in anticipation of a sale for any other purpose…other than to fund the purchase of the parked 1031 replacement property.
The tax rationale for this is that the loan is part of a continuation of investment, not a cash out.
Use a 1031 Exchange to Save Money in Capital Gains Taxes
When executed correctly, a 1031 exchange can help you save money in capital gains taxes. But there are various rules and benchmarks that you must meet in order to achieve full capital gains tax deferral on your sale. Reach out to our team of tax professionals today to learn more about the 1031 exchange process and see how we can help you through the details of your next 1031 real estate exchange. Our office is located in Minneapolis. We work with clients throughout Minnesota as well as across the entire country.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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