1031 2 houses to 1 and owner finance?

[Arktinkerer]

Looking into letting go of one or more rental properties.  Some thoughts about letting several cheaper/older houses go and getting one newer larger one.  Never did a 1031 exchange before--tried once but the title company fouled up and it just became a sale and purchase.  Not using them again.  May have to do closing thru an attorney this time.

Any insights from those who have done or investigated exchanges would be welcome.

Specific questions  I have--
1. Given that I would be trading up I would  like to convert two or more older homes to one.  Is this possible if there are different buyers for the homes?  What if there is excess cash from the sales?
2.  What if I take back a loan on an exchange?  Again, what if the total sale price(s) wind up being more than the new purchase?
3. Tax consequences due to reclaimed depreciation?  Especially if I take back a loan, do I have to dump cash in to pay off the taxes to close the sale?
4. What if I take back a loan and there is a default on an exchanged property?

[tralfamadorian]

1. Given that I would be trading up I would  like to convert two or more older homes to one.  Is this possible if there are different buyers for the homes?  What if there is excess cash from the sales?

1. Yes, it possible to sell two homes as the relinquishing properties to different buyers and have a single replacement property.  However, the clock starts ticking for the 45/180 days on the closing day of the first property.  Depending on the markets you are buying and selling in, that may be challenging.  If there is excess cash called a "cash boot" in 1031 terminology, you will pay taxes on that.   

2.  What if I take back a loan on an exchange?  Again, what if the total sale price(s) wind up being more than the new purchase?

2. I'm not sure what you mean by "take back".  However, a requirement of a tax free 1031 is that the loan on the replacement property is equal to or greater than the relinquishing properties.  If there is less debt on the replacement property, there is a "debt reduction boot" and tax will be due on the difference.   

[Arktinkerer]

"Take back a loan" means I finance the buyer for all or part of the purchase.  Probably wouldn't do it as a secondary status--i.e. I would not loan money and be second in line in case of default.  I would probably prohibit any other liens until I was paid in full.

[tralfamadorian]

Okay.  Take back = seller financing.

In that scenario, you would still need to assume debt on the replacement property equal to or greater than the debt on the relinquishing property or pay taxes on the debt reduction boot.