What is a 1031 exchange?

A 1031 exchange, also known as a like-kind exchange, is a powerful tax-deferment strategy popular with experienced real estate investors. It allows you to defer capital gains taxes on an investment property when it’s sold—as long as the investor purchases another like-kind property with the proceeds of the first property sale.

Can a 1031 exchange be used to pay off a mortgage?

Real estate investors can defer capital gains on the sale of an investment property by purchasing a replacement asset as part of a 1031 exchange. However, can money from a 1031 exchange be used to pay off a mortgage?

What happens if you buy a 1031 exchange property?

Let's say the mortgage on your relinquished property was $200,000, but when you acquire your replacement property through the 1031 exchange, the mortgage on it is only $100,000. In this scenario, you would have $100,000 in debt reduction boot.