Absolutely! At 1031 Exchange Place, we get asked this question a lot. And the answer is yes, you can do a 1031 exchange if you have a mortgage on your relinquished property.
A 1031 exchange is a tax-deferred exchange of one investment property for another. When you sell your property and buy a new one, you can defer paying capital gains taxes by reinvesting the proceeds from the sale into a new property.
Having a mortgage on your relinquished property does not disqualify you from doing a 1031 exchange. However, it is important to consider the mortgage balance when calculating your tax liability.
When you sell your relinquished property, the mortgage will need to be paid off from the proceeds of the sale. If the mortgage balance is greater than the sale price, you will have a taxable gain on the portion of the mortgage that was not covered by the sale price.
The key is to ensure that the total value of the new property you acquire, including any mortgages or loans, is equal to or greater than the total value of the relinquished property.
At 1031 Exchange Place, we can help you navigate the 1031 exchange process, including the rules and regulations regarding mortgages on relinquished properties. Contact us today to learn more about how we can help you defer your taxes and build your real estate portfolio.