What if you do a 1031 exchange and you reinvest all of your equity into the replacement property and then after you acquire the replacement property you find that you’re short of cash? You may have an unforeseen vacancy or repair expense, and you may conclude that you need to refinance your replacement property. Is that going to trigger gains from the sale of your relinquished property if you’re drawing out the equity?
Generally, as long as the refinance is done in a separate, subsequent transaction, it will not trigger gains. Please consult with your tax attorney and other advisors regarding this. You may want to separate your refinance and your purchase closing so that there is a substantial period of time between these two transactions. You don’t want to give the IRS the argument that the purchase closing and the refinance closing were one continuous transaction.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
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