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My question is about 1031 exchange and whether I can get rid of the mortgages from my life once and for all, by investing only with the equity I got? Looks like this great idea is not possible.

The question is: Can the replacement property be around 400K, or is it that it must be worth 850K, and I must end up with a new 450K mortgage?

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The key element of a 1031 is that you are replacing the property with on at least as expensive. Any cash pulled out creates tax issues.

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