Can I use raw land proceeds to payoff an existing house mortgage as a 1031 like kind transaction?
We are trying to avoid paying taxes on the sale of raw land. How can we do that without buying more raw land?
Best Answer
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Section 1031 exchanges are very complicated and have specific rules when identifying new property to buy/sell. Meaning selling your existing land to pay on an existing house mortgage would not satisfy the requirements to qualify as a Section 1031 like-kind exchange. The IRS would see this as a sale of a capital asset with realized gains to be included on your tax return. What you do with those funds are not connected directly to paying off the mortgage to hide the realized capital gain (benefit of section 1031 exchange). A section 1031 exchange would require you to buy more raw land to qualify for non-recognition of capital gain on the sale of the first property.
