Question:
“I sold a rental house for $400,000 and am doing a 1031 tax deferred exchange. There was no loan, so I have $375,000 in my exchange account. I’m buying in Texas and my agent there says I must buy for $400,000. Is he correct? I thought only had to use my cash from the sale. I don’t have any extra money, so I may need to get a small mortgage.”
Answer:
Good news: You’re right and your agent is wrong!
As long as you use all your money, and that can include closing costs, you will defer all your taxes.
The rules for reinvesting on a 1031 exchange are quite simple if you didn’t have a mortgage.
In fact, they’re not much more complicated if you had a mortgage:
You’d just have to use up all your proceeds, plus get a mortgage for at least the amount of the mortgage you had.
Easy.
(FYI, since I’m not a tax professional, I’m required to tell you to double-check with one.)
