Understanding Debt in a Like-Kind Exchange
Investors will typically find themselves being advised by legal counsel, tax advisors and Qualified Intermediaries to acquire new debt on their like-kind replacement property once they have paid off at the closing of their relinquished property; however, this is not required. In reality, the net sales value of the relinquished property sold by the investor must be replaced by like-kind replacement properties equal to or greater in net purchase value; in addition, cash proceeds from the sale of the Investor’s relinquished property must be reinvested.
Debt does not need to be replaced; however, the difference between the net purchase price and the reinvested equity will have to be met with new debt or additional invested monies. If the Investor refinances the investment property and pulls cash out with new debt additional cast investments can be withdrawn without creating a taxable event; otherwise, they become trapped in the investment property. All income tax liabilities will be able to be deferred if the Investor reinvests all of the net cash profit and the value of the exchange equal to or up.
Disclaimer: 1031 exchange made simple does not guarantee the performance of the QI's in our referral network and we can not be held liable for any misrepresentations or mistakes in regards to a 1031 exchange by one of the QI's that we refer to you. 1031 Exchange made simple does not provide tax advice nor can we make representations regarding the tax consequences of an exchange transaction. 1031 Exchange made simple is a 1031 QI Referral Network. 1031 made simple is not responsible (in any way) for the performance, creditability, and financial condition of any QI in our network. In this new economic environment it is imperative that all potential 1031 exchange customers do their own due diligence and research on any QI that they may use, on a 1031 exchange. Please verify and check the validity of the Bonding and Insurance of your QI. It may be wise to have your 1031 exchange accounts set up as separate, individual customer accounts. Our web site is to be used as a information based web site only. All parties doing a 1031 exchange must consult their tax advisors or attorney for this information.
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