--- title: Can You Borrow Against a 1031 Exchange Property? description: Borrowing against property that’s owned is one thing. But can you borrow against a 1031 exchange property? Can you obtain a cash-out refinance on your replacement property? image: https://www.realized1031.com/hubfs/loan-1211495739.jpg --- [![Realized 1031 Exchange Marketplace](https://www.realized1031.com/hs-fs/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black.png?width=240&height=80&name=Realized-Logo-Black.png "Realized 1031 Logo") ](https://www.realized1031.com/) - [Wealth Management Gap](https://www.realized1031.com/the-wealth-management-gap) - [Our Process](https://www.realized1031.com/how-realized-works) - [Financial Advisors](https://www.realized1031.com/advisor) - [Resources](https://www.realized1031.com/resources) - [The Company](https://www.realized1031.com/about-us) - [Articles](https://www.realized1031.com/blog) [Register](https://www.realized1031.com/marketplace) [Log In](https://www.realized1031.com/login) - Better Business Bureau Rating: **A+** - [FINRA BrokerCheck](https://brokercheck.finra.org/firm/summary/22333) - [Call](tel:1-877-797-1031) **(877) 797-1031** # Can You Borrow Against a 1031 Exchange Property? Posted Jun 6, 2023 ![loan-1211495739](https://www.realized1031.com/hs-fs/hubfs/loan-1211495739.jpg?width=750&height=500&name=loan-1211495739.jpg) One of the potential benefits of direct real estate ownership is the ability to “borrow” against it. This is known as a “cash-out refinance,” and it [involves applying for a new loan](https://www.realized1031.com/blog/cashing-out-to-bring-more-in) to pay off the property’s current loan, while obtaining extra cash based on that property’s equity.  Borrowing against property that’s owned is one thing. But can you borrow against a 1031 exchange property? Can you obtain a cash-out refinance on your replacement property?  The answer to this question is a little more complex. You technically can borrow against your exchange property. You could also be on the hook for capital gains taxes from a cash-out refinance.  ### Understanding Exchange Rules  One main in-stone requirement of a 1031 exchange is that the property you exchange into (the replacement property) must be of equal or greater value than the property you sell (the relinquished property). But there could be “boot” involved – in other words, any cash profits or non-like-kind property.   Cash boot occurs when you don’t use all the proceeds from the sale of your relinquished property to invest in your replacement property. And those proceeds will be taxed at [the capital gains tax rate](https://www.realized1031.com/blog/capital-gains-tax-rate-treatment-on-the-way-in-and-out).   ### Cash-Back Optics  How does a cash-back finance operate under a 1031 exchange situation? This depends.  Pulling equity out of a relinquished or replacement property just prior to or just after completing a like-kind exchange might signal to the IRS that you’re trying to get away with tax-free cash. This is especially the case if there isn’t a specific or independent business purpose for a refinance. One example of a “specific independent business purpose” could involve the renovation of an exchange property.   But pulling money out of a relinquished or replacement property before or after a 1031 exchange could lead the IRS to call that gain “boot.” This, in turn, could trigger a taxable gain – something you’re attempting to avoid through a like-kind exchange.  ### Borrowing Against the Property  This is not to suggest that it’s impossible to borrow against a 1031 exchange property. But consider the following if you need to take this action:  Separate the transactions. Be sure that any refinance transaction on which you embark is separate from the exchange sale/transaction. You want to let the IRS know that the two actions are not connected.  Extend the hold. If you want to borrow against the replacement property, hold it before commencing. A one-to-two-year hold could be enough to minimize IRS scrutiny on the property.  Focus on the replacement property. In many cases, it’s considered not as risky to refinance the replacement property (versus the relinquished property). Again, this should be accomplished post-closing and in a separate transaction.  Demonstrate a specific purpose. If you must borrow against your relinquished or replacement properties, define a specific need for the cash. Taking cash out to buy another property isn’t a specific need – the IRS would look on that as getting tax-free money.  ### Understanding the Exchange Purpose  The overall purpose of a like-kind exchange is to help defer capital gains taxes from the sale of real estate. Because of this, borrowing against a relinquished or replacement property without considering how this might be viewed by the IRS could cost you.  As such, when it comes to anything concerning the 1031 exchange (including borrowing against the property), be sure to check with a qualified tax advisor.  This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Costs associated with a 1031 transaction may impact investor's returns and may outweigh the tax benefits. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. Download The Guide To 1031 Exchange [![The 1031 Investor's Guidebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-250.png?width=250&height=250&name=1031-Exchange-eBook-250.png "Tackle the art and science of ...") ](https://www.realized1031.com/blog/can-you-borrow-against-a-1031-exchange-property#blogform) Download eBook ---   --- ### The 1031 Investor's Guidebook ![Download The Guide To 1031 Exchange](https://www.realized1031.com/hs-fs/hubfs/Images/UI/graphics/composites/1031-Exchange-eBook-550.jpg?width=550&height=650&name=1031-Exchange-eBook-550.jpg) Tackle the art and science of completing your 1031 exchange. By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received. Search ### [Why Realized](https://www.realized1031.com/why-realized) - [Wealth Management](https://www.realized1031.com/the-wealth-management-gap) - [Why Realized](https://www.realized1031.com/why-realized) - [Our Process](https://www.realized1031.com/how-realized-works) - [Scenarios](https://www.realized1031.com/scenarios) - [Private Client Program](https://www.realized1031.com/private-client) - [Realized Exchange Services](https://www.realized1031.com/realized-exchange-services) ### [The Company](https://www.realized1031.com/about-us) - [The Team](https://www.realized1031.com/about-us) - [FAQ](https://www.realized1031.com/frequently-asked-questions) - [Testimonials](https://www.realized1031.com/testimonials) - [Press](https://www.realized1031.com/press) - [Careers](https://www.realized1031.com/careers) ### [Partners](https://www.realized1031.com/partners) - [Financial Advisors](https://www.realized1031.com/advisor) - [Broker Dealers](https://www.realized1031.com/partners/broker-dealers) - [Real Estate Agents](https://www.realized1031.com/partners/real-estate-agents) - [Certified Public Accountants](https://www.realized1031.com/partners/certified-public-accountants) ### [Resources](https://www.realized1031.com/resources) - #### Learn - [Articles](https://www.realized1031.com/blog) - [Glossary of Terms](https://www.realized1031.com/glossary) - [Capital Gains Tax Rates](https://www.realized1031.com/capital-gains-tax-rate) - #### Watch - [Video Library](https://www.realized1031.com/videos) - [Webinar Archive](https://www.realized1031.com/webinars) - #### Read - [Delaware Statutory Trust](https://www.realized1031.com/delaware-statutory-trust) - [Tenants-In-Common](https://www.realized1031.com/tenants-in-common-tic) - [1031 Exchange](https://www.realized1031.com/1031-exchange) - [Qualified Intermediary](https://www.realized1031.com/qualified-intermediary) - [Qualified Opportunity Zones](https://www.realized1031.com/opportunity-zones) #### Realized - 500 W 13th Street Austin, TX 78701 - (877) 797-1031 ##### [Contact Us](https://www.realized1031.com/contact-us) - [![Realized on Facebook](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-facebook-whiterev.png?width=60&height=60&name=social-facebook-whiterev.png)](https://www.facebook.com/Realized/) - [![Realized on LinkedIn](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-linkedin-whiterev.png?width=60&height=60&name=social-linkedin-whiterev.png)](https://www.linkedin.com/company/realized/) - [![Realized on YouTube](https://www.realized1031.com/hs-fs/hubfs/Images/UI/Social/Icons/Mix/social-youtube-whiterev.png?width=60&height=60&name=social-youtube-whiterev.png)](https://www.youtube.com/c/Realized1031?sub_confirmation=1) - [![Realized Holdings, Inc. BBB Business Review](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/bbb/RZH2-bbb-seal.png?width=40&height=65&name=RZH2-bbb-seal.png)](http://www.bbb.org/central-texas/business-reviews/real-estate-investors/realized-holdings-llc-in-austin-tx-1000112948/#bbbonlineclick) - [![FEA Logo](https://www.realized1031.com/hs-fs/hubfs/Images/professional-assoc/fea/RZH2-fea-logo.png?width=82&height=65&name=RZH2-fea-logo.png "FEA Logo")](https://www.1031.org) SECURITIES DISCLOSURE Realized1031.com is a website operated by Realized Technologies, LLC, a wholly owned subsidiary of Realized Holdings, Inc. (“Realized Holdings”). Securities and/or Investment Advisory Services may be offered through Registered Representatives or Investment Advisor Representatives of Realized Financial, Inc. ("Realized"), a broker/dealer, member [FINRA](https://www.finra.org)/[SIPC](https://www.sipc.org/), and registered investment adviser. Realized is a subsidiary of Realized Holdings, Inc. ("Realized Holdings"). Check the background of this firm on [FINRA's BrokerCheck](https://brokercheck.finra.org/firm/summary/22333). Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. This site is published for residents of the United States who are accredited investors only. Registered Representatives and Investment Advisor Representatives may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed until appropriate registration is obtained or exemption from registration is determined. Not all of services referenced on this site are available in every state and through every representative listed. For additional information, please contact the Realized Compliance department at 512-472-7171 or info@realized1031.com. - [Terms & Conditions](https://www.realized1031.com/terms-and-conditions) - [Privacy Policy](https://www.realized1031.com/privacy-policy) - [Form CRS](https://www.realized1031.com/hubfs/common-files/disclosures/FormCRS.pdf) - [ADV 2A](https://www.realized1031.com/hubfs/common-files/disclosures/ADV2A.pdf) - [Reg BI Disclosures](https://www.realized1031.com/hubfs/common-files/disclosures/RegBI.pdf) -   © 2026 Realized Holdings, Inc. ```json { "@context" : "http://schema.org/", "@type" : "BlogPosting", "articleBody" : "One of the potential benefits of direct real estate ownership is the ability to “borrow” against it. This is known as a “cash-out refinance,” and it involves applying for a new loan to pay off the property’s current loan, while obtaining extra cash based on that property’s equity. Borrowing against property that’s owned is one thing. But can you borrow against a 1031 exchange property? Can you obtain a cash-out refinance on your replacement property? The answer to this question is a little more complex. You technically can borrow against your exchange property. You could also be on the hook for capital gains taxes from a cash-out refinance. Understanding Exchange Rules One main in-stone requirement of a 1031 exchange is that the property you exchange into (the replacement property) must be of equal or greater value than the property you sell (the relinquished property). But there could be “boot” involved – in other words, any cash profits or non-like-kind property. Cash boot occurs when you don’t use all the proceeds from the sale of your relinquished property to invest in your replacement property. And those proceeds will be taxed at the capital gains tax rate. Cash-Back Optics How does a cash-back finance operate under a 1031 exchange situation? This depends. Pulling equity out of a relinquished or replacement property just prior to or just after completing a like-kind exchange might signal to the IRS that you’re trying to get away with tax-free cash. This is especially the case if there isn’t a specific or independent business purpose for a refinance. One example of a “specific independent business purpose” could involve the renovation of an exchange property. But pulling money out of a relinquished or replacement property before or after a 1031 exchange could lead the IRS to call that gain “boot.” This, in turn, could trigger a taxable gain – something you’re attempting to avoid through a like-kind exchange. Borrowing Against the Property This is not to suggest that it’s impossible to borrow against a 1031 exchange property. But consider the following if you need to take this action: Separate the transactions. Be sure that any refinance transaction on which you embark is separate from the exchange sale/transaction. You want to let the IRS know that the two actions are not connected. Extend the hold. If you want to borrow against the replacement property, hold it before commencing. A one-to-two-year hold could be enough to minimize IRS scrutiny on the property. Focus on the replacement property. In many cases, it’s considered not as risky to refinance the replacement property (versus the relinquished property). Again, this should be accomplished post-closing and in a separate transaction. Demonstrate a specific purpose. If you must borrow against your relinquished or replacement properties, define a specific need for the cash. Taking cash out to buy another property isn’t a specific need – the IRS would look on that as getting tax-free money. Understanding the Exchange Purpose The overall purpose of a like-kind exchange is to help defer capital gains taxes from the sale of real estate. Because of this, borrowing against a relinquished or replacement property without considering how this might be viewed by the IRS could cost you. As such, when it comes to anything concerning the 1031 exchange (including borrowing against the property), be sure to check with a qualified tax advisor.", "articleSection" : [ "1031 Exchange" ], "author" : { "@type" : "Person", "email" : "marketing@realized1031.com", "image" : "", "name" : "The Realized Team", "url" : "https://www.realized1031.com/blog/author/the-realized-team" }, "dateModified" : "2023-06-06T12:00:00+0000", "datePublished" : "2023-06-06T12:00:00+0000", "description" : "Borrowing against property that’s owned is one thing. But can you borrow against a 1031 exchange property? Can you obtain a cash-out refinance on your replacement property? ", "headline" : "Can You Borrow Against a 1031 Exchange Property?", "image" : { "@type" : "ImageObject", "height" : 500, "url" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/loan-1211495739.jpg", "width" : 750 }, "mainEntityOfPage" : "https://www.realized1031.com/blog/can-you-borrow-against-a-1031-exchange-property", "name" : "Can You Borrow Against a 1031 Exchange Property?", "publisher" : { "@type" : "Organization", "address" : { "@type" : "PostalAddress", "addressCountry" : "USA", "addressLocality" : "Austin", "addressRegion" : "TX", "postalCode" : "78701", "streetAddress" : "500 W 13th Street " }, "logo" : { "@type" : "ImageObject", "height" : 60, "url" : "http://www.realized1031.com/hubfs/Images/Brand/Logo/Realized/Realized-Logo-Black-No-Margin-296x60-AMP.png", "width" : 296 }, "name" : "Realized" }, "thumbnailUrl" : "https://733513.fs1.hubspotusercontent-na1.net/hubfs/733513/loan-1211495739.jpg" } ```