Exchanging A Rental Prop. 1031 Question
I am exchanging one rental property for another like kind. The rental property I am selling was a fixer. I used a home equity line of credit for the repairs/ improvements but the line of credit was attached to another property (my primary). I think I have made a mistake by using this line of credit. Is it possible to pay off this line of credit (around 100k attached to my primary residence) with the profits from the sale during the exchange?
Thanks in advance!
I think the same question was asked about a month ago and the overwhelming answer was no.
The whole idea behind an exchange is to exchange the entire property for something of equal or greater value, taking no profits in the transaction.
Thanks for the response. What I've leared to date is that it depends on the property to which that loan is attached. If it was attached as (it was supposed to be) to my primary residence (not the exchange property) I could not pay back the loan from the proceeds...my mistake. Fortunately for me, the underwriter mistakenly attached the loan to the investment property in their property description...their mistake. What I've learned is that because the loan was attached to the investment property I can pay back with the proceeds. As of now, it looks as though I got lucky on this one, I guess two wrongs do make a right?
So you are saying that even tho you took out a heloc on your home and the entire application process showed all of that detail, including that you owned a mortgage on another property that was not generating income, it got approved? On what property did they do the appraisal? And you will be able to use the 1031exchange? Is this considered an investment or a rental? Did you rent it out? Why am I confused? Will you be exchanging for a fixer or a rental?
The exchange is for a rental/ fixer on both ends. The appraisal for the home equity was done on my primary whis is also part rental. How they made the mistake of using the physical description of my other property (rental) I am still investigating. They are on the same street which may have had some influence? This is all a bit confusing... and how it will turn out is yet to be seen.
Point is, I got the line of credit for the purpose of fixing up the rental property that I am exchanging but made the rookie mistake of getting that line of credit on my primary residence (not being sold) without considering the tax consequences. When in escrow, I was told that the property I am selling was encumbered by the equity loan. The bank has somehow used the wrong property in their description. 99% of the time this would be a problem, however, here it seem to be a correction to my mistake. I may be misguided here and am still looking into it. I've detailed the situation to my CPA who seems to think this has worked out OK and I will be able to pay off with the proceeds in the exchange. If any of this makes sense to you, you are better at puzzles than I.
Funny
Great puzzle for sure.
Yep, makes more sense and certainly looks like it will be to your benefit, based on your initial question of paying off that heloc during the 1031.
Just don't let the bank clear up their attachment error!
:-o