Can You Refinance a 1031 Exchange Property?

Many real estate investors sometimes wish to generate some cash during the time of selling a relinquished property. That said, it should be no surprise that property owners plan to refinance the relinquished property before the exchange or refinance after 1031 exchange in order to get cash out of the property. Learn more about refinancing a tax-deferred exchange.  

Refinancing a 1031 Exchange 

Generally, refinancing property planned for a 1031 exchange is highly discouraged. In fact, refinancing property in order to cash out equity before or after completing a tax-deferred exchange can result in a taxable transaction. All in all, it is possible to refinance a 1031 exchange as long as it is for a legitimate business purpose.  Before you think of refinancing a 1031 exchange, it is worth noting that the purpose of the exchange is to use the equity built on a relinquished property to acquire new property. Refinancing to cash out the equity defeats this purpose, and that’s why the transaction becomes taxable.  While it is possible to refinance a 1031 exchange without triggering tax, you should be very careful before doing it. Considering that refinancing is likely to put cash into your pocket and reduce the amount you are required to pay on the replacement property, the IRS sees it as a way to avoid paying taxes on the cash taken out in the loan.  If you must refinance property planned for a tax-deferred exchange, then make sure to do it at least six months prior to the property going on the market. The IRS will accept refinancing as long as you can establish the refinance has an independent economic substance.  Refinancing a 1031 exchange is generally not recommended. As a real estate investor planning to refinance a 1031 exchange, it is good to discuss plans with your tax advisors before executing the plan. Notably, it is possible to refinance an exchange if it is independent of the exchange. Spire Financial services can help guide you through the process. 

A Lending Hand for Financing Home Mortgages

Spire Financial (A Division of V.I.P. Mortgage, Inc.) brings lending expertise to you. All of our loan officers offer personalized communication for every client, guiding them through the process. We can show you ways to maximize your finances and unlock future opportunities. Spire Financial keeps you in control of refinancing, debt consolidation, and home equity. Together, we can achieve your financial goals.



V.I.P. Mortgage, Inc. DBA Spire Financial does Business in Accordance with Federal Fair Lending Laws. NMLS ID 145502. For state specific licensing, visit V.I.P. Mortgage, Inc. is not acting on behalf of or at the direction of the FHA/HUD or the Federal Government. This product or service has not been approved or endorsed by any governmental agency, and this offer is not being made by any agency of the government. V.I.P. Mortgage, Inc. is approved to participate in FHA programs but the products and services performed by V.I.P. Mortgage, Inc. are not coming directly from HUD or FHA. Information, rates, and programs are subject to change without notice. All products are subject to credit and property approval. Not all products are available in all states or for all loan amounts. Other restrictions may apply. This is not an offer to enter into an agreement. Not all customers will qualify.

2023 © Spire Financial


Contact Us (303) 595-0110