1031 exchange

[wexeter]

Replacing Debt with Cash

Going back to your original post, you can certainly offset any liabilities that you were relieved of with new cash. Your client was relieved of debt in the amount of $40K and then paid $90K into the acquisition transaction.

Your client traded up in value, reinvested all of his or her equity and replaced his or her debt with cash, so 100% of the capital gain and any depreciation recapture would be deferred.

[jainen]

mortgage boot in an exchange

>>Your client was relieved of debt in the amount of $40K<<

Your client had to put in an extra forty grand cold cash to make this work, so he probably wasn't all that "relieved."

The code and regulations explain how to treat loans assumed by the other party or subject to which the property is transferred. There is nothing about paying off a loan (or acquiring a new loan) since it doesn't affect the actual exchange of values one way or another.

Standard underwriting does not permit the assumption of a loan, so you virtually never see mortgage boot in an exchange.