The short answer
Yes. The exchange rules do not care what secures the new debt. If you sign a blanket loan secured by the replacement and another property, the loan is a liability you took on to buy the replacement; if you borrow against a property you keep and bring that money to closing, it is cash you paid. Under Reg. section 1.1031(d)-2 either one offsets the mortgage paid off on your sale. The limit is one-way: new debt and added cash can offset debt relief, but nothing offsets cash you received.
At a glance
| Blanket loan on replacement plus other property | Counts as a liability you assumed in the exchange |
|---|---|
| Loan on a property you keep | The proceeds you bring to closing count as cash you paid |
| What it offsets | Mortgage or other debt relieved on the relinquished property |
| What it cannot offset | Cash or other property you received from the exchange |
| Basis effect | Added debt or cash raises the replacement's basis under section 1031(d) |
| Do not | Pledge the exchange account itself as collateral |
| Later sale under a blanket loan | Debt relief is the share of the loan paid off or assumed |
Collateral is a lender's question; the tax question is only how much debt and cash you put in
Section 1031(d) treats debt the buyer takes off your hands as money received. Reg. section 1.1031(d)-2 then offsets it: in Example 2, debt relief 'is offset by consideration given in the form of a receipt of property subject to' a liability 'and by the $40,000 cash paid.'
The Form 8824 instructions apply the same netting on line 15: net liabilities assumed by the other party are the excess of the debt relieved over 'any liabilities you assumed', 'cash you paid to the other party' and other property you gave up. Neither the regulation nor the instructions ask which properties secure the new loan.
So a lender that wants your other building as extra collateral is making a credit decision. The exchange arithmetic is unchanged.
Two ways to use property you already own, and how each one is counted
A blanket loan names you as borrower and is secured by the replacement and one or more properties you keep. Under the instructions, a recourse liability is treated as assumed by the party who 'has agreed to and is expected to satisfy' it, which is you, and the money is used to pay the replacement's price. The full loan you take on in the purchase is a liability assumed.
A separate loan on a property you keep, such as a cash-out refinance or a credit line, puts money in your account, and you then send it to the replacement closing. That is cash paid by you, which the regulation also lets you set against the debt relieved.
The direction matters. The regulation's second example adds that 'consideration received in the form of cash or other property is not offset by consideration given in the form of an assumption of liabilities.' If you pulled cash out of the exchange, borrowing more on another property does not cancel it; see does more debt offset cash taken out.
Worked example: a $1.2 million replacement secured with a second rental
Hypothetical, round numbers; run your own numbers with your CPA. You sell a rental for $1,000,000 and pay off a $500,000 mortgage, so $500,000 goes to the intermediary. The replacement costs $1,200,000. The lender will lend $700,000 only if your other rental is added as collateral.
Version one: a $700,000 blanket loan secured by both buildings, plus $500,000 of exchange funds. The $500,000 of debt relieved is offset by the $700,000 you assume, nothing is recognized, and the replacement's basis rises by the extra debt.
Version two: a $300,000 credit line on the other rental, a $400,000 loan on the replacement alone, plus $500,000 of exchange funds. The debt relieved is offset by the $400,000 assumed and $100,000 of the $300,000 cash you paid. Again nothing is recognized. How the extra debt and cash flow into basis is explained in basis in the replacement property after a 1031.
What to check before you sign a blanket loan
Read the release provisions. A blanket loan usually lets you sell one property only by paying a release price, and that number determines your debt relief on a future exchange. For a property transferred subject to a shared nonrecourse loan, the instructions reduce the liability treated as assumed when the owner of the other assets agrees to satisfy part of it.
Keep the exchange account out of it. Reg. section 1.1031(k)-1(g)(6) bars you from any right to 'pledge, borrow, or otherwise obtain the benefits of' the funds the intermediary holds, so the lender's collateral must be real estate, not the account.
Watch the order of borrowing on the property you are selling. Refinancing it just before the sale and keeping the cash is a different problem, covered in can I take my original down payment out tax-free. Using exchange money to pay down debt on a property you keep is also not allowed; see paying down a mortgage on a property I already own.
A trust interest supplies debt without touching your other properties
If the lender's collateral demand is the obstacle, part of the proceeds can go into a Delaware Statutory Trust interest instead. The trust's loan is nonrecourse and secured only by the trust's property, so nothing you own is pledged, and your share of that loan counts toward the debt you must replace; see does a DST's loan count as replacement debt and our traditional DST page.
Related questions
Does the whole blanket loan count, even the part secured by my other building?
The loan amount you take on to buy the replacement is the liability assumed in the exchange. Who or what secures it is not part of the Form 8824 netting.
Can I borrow against a property I keep after the sale but before the replacement closes?
Yes. Money you bring to the replacement closing is cash paid, whenever you borrowed it, as long as it does not come from the exchange account.
Does cross-collateralizing change my basis?
Added debt or cash raises the replacement's basis, because section 1031(d) carries over your old basis and adds consideration you gave.
Can the lender take a lien on my exchange account until closing?
No. A pledge of those funds gives you their benefit before the exchange ends, which Reg. section 1.1031(k)-1(g)(6) forbids.
Is debt on another property I already owned before the sale replacement debt?
Not by itself. Only debt you take on in buying the replacement, or cash you actually bring to its closing, counts; existing debt on a property you keep is irrelevant.
Sources
Checked against these publications on September 30, 2026. Rules and figures change; confirm the current version with your CPA or attorney before you act. This page is general information, not tax or legal advice.