Getting Money From a 1031 Exchange

As noted in the Property Selling section of this site, any money
you receive while using a section 1031 like-kind exchange is
considered "boot". Boot is fully taxable and is added to your
income. When you do a 1031 exchange for like-kind property, you
are required to roll over all cash you might receive in the sale. You
may think to yourself, "Why not take a loan out on my existing
property prior to doing the like-kind exchange?" The answer is that
you can't. The rules of Internal Revenue Code 1031 say that you
cannot do that. What you can do is take out a loan on the property
you received in the like-kind exchange. Thus, you would do the
following to get cash from the 1031 exchange; (1)do the 1031
exchange for like-kind property,(2) receive the new property, and
(3) refinance. This loophole allows you to receive cash without
jeopardizing the 1031 transaction.

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