1031 exchange:
Replacement Property

Hello there.

I have a question concerning the replacement property in an exchange. If the replacement property has an Assumable Mortgage, how can the exchange transaction take place? Do the proceeds from the relinquished property go towards principal on the existing mortgage? Can the proceeds go towards paying off the owner's equity at closing? In general how would it be possible to assume a mortgage on the replacement property and still have it qualify for the exchange?

Thanks for your help.
Cliff

Dear Cliff: Generally an assumable mortgage is not trouble. Just remember the general rule that you must trade equal or up in value and in equity to fully defer your tax liability. In your question cash from your sale can go to the seller and/or the lender (as pay down of principal on the loan). If you anticipate more cash from your sale than you need for your purchase then you can place a second mortgage on your sale property to balance out your equity position. We make these kind of loans at reasonable terms. I hope this is all clear to you if not try me again and use "real numbers."

Sincerely,
Steve Hickox
Attorney / President

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