Posted by Hawkster on January 14, 2007 at 05:57:35:
My accountant would say that Lechter and Sutton is correct. I believe her.
If you put all of the cash back into the acquired property, and the acquired property is of equal or greater value. Then the government has no interest in whether the difference between the acquired property and re-invested cash comes out of your pocket or from a third party lender. All they care about is that it comes from somewhere. I.E., that your previous indebtedness did not simply vanish.
Does a 1031 exchange require indebtedness to be equal to or more on the acquired property than the sold property? There is a definite difference of opinion. See below:
Lechter and Sutton state the following in their book, “Rich Dad’s Real Estate Advantages:”
“Finally, contrary to the belief of most tax advisors, there is no requirement that the debt on the New Property be equal to or greater than the amount of debt on the Old Property. You only need to buy equal or up and reinvest all of the cash to avoid having to pay any tax. Many tax professionals, as well as most exchange advisors, are confused about this, but it’s true–there is no debt replacement requirement.” (Page 91)
Ray Alcorn’s article on 1031 exchanges states:
“That means you must trade for a property or properties that are equal or greater in value, your equity position must be equal or greater than in the relinquished property, and you must owe at least as much or more on the new property(s) as you did on the old. You can trade one property for multiple properties, or multiple properties for one property, as long as the aggregate values and debt are equal or greater.”