The short answer
An assumable loan is a mortgage whose terms let a buyer take over the seller's obligation, usually with the lender's consent, an assumption agreement and a fee, instead of the loan being paid off at closing. Federal law lets lenders enforce due-on-sale clauses, so a loan is assumable only where its own documents allow it. In an exchange, an assumption is debt relief for the seller and debt taken on by the buyer, and the netting works exactly as it does for a payoff and a new loan.
At a glance
| Default rule | Due-on-sale clauses are enforceable under federal law |
|---|---|
| Typical conditions | Lender consent, a qualified buyer, an assumption agreement and a fee |
| Seller's side | The assumed balance is treated as money received |
| Buyer's side | The assumed balance is consideration given and offsets debt relief |
Due-on-sale clauses are the default, and assumption is the negotiated exception.
12 U.S.C. 1701j-3 defines a due-on-sale clause as a provision letting the lender declare the loan due if the property is sold or transferred without its written consent, and allows lenders to enforce one notwithstanding contrary state law, with the exercise governed by the loan contract. A loan is therefore assumable only if, and on the terms that, its documents say.
A CMBS prospectus filed with the SEC in 2025 lists conditions commercial loans commonly attach to a permitted transfer: no event of default, a creditworthy transferee with experience owning similar property, confirmation from the rating agencies, an assumption agreement with legal opinions and title endorsements, and payment of an assumption fee. Some loans allow a limited number of transfers without a fee.
For tax, an assumption counts like cash to the seller and like new debt to the buyer.
Reg. section 1.1031(b)-1(c) treats an assumption of your liabilities as money received, and offsets it with liabilities you assume. The Form 8824 instructions add that a recourse debt is treated as assumed by the party who agreed to and is expected to pay it, whether or not the lender released the transferor.
Hypothetical figures: you sold your relinquished property and a $600,000 loan was paid off. You buy a $1,500,000 replacement by assuming the seller's $700,000 loan and using $800,000 of exchange funds. The $700,000 you assume exceeds the $600,000 you shed, so there is no net debt relief. Under Publication 535, expenses you pay to obtain a mortgage on income-producing property are capital costs amortized over the life of the loan; whether an assumption fee is treated the same way is a question for your CPA, and paying lender charges from exchange funds is covered in loan fees and points from exchange funds. Run your own numbers with your CPA.
It bites on lender timing and on which side of the exchange you are on.
Lender approval of a new borrower takes its own time, and the 180-day exchange period does not wait for it; see what if my lender delays the 1031 deadline. Ask for the lender's assumption package as soon as the contract is signed, and build its approval period into the purchase contract's financing contingency so a slow answer does not leave you without an identified property you can close.
On the sale side, a buyer assuming your low-rate loan changes nothing in your arithmetic, as explained in can my buyer assume my low-rate mortgage. A DST interest is not an assumption: you are allocated a share of the trust's existing loan without becoming a borrower, explained in non-recourse debt.
Related questions
Does an assumption avoid a prepayment premium?
Usually, because the loan is not repaid; the borrower changes and the loan continues. The lender charges an assumption fee and costs instead, under whatever terms the loan documents set.
If the lender does not release me, is the debt still treated as assumed?
For a recourse loan, the Form 8824 instructions treat it as assumed by the party who agreed to and is expected to pay it, and say it does not matter whether the transferor was relieved. You remain exposed to the lender, which is a credit risk rather than a tax one.
Can I assume a loan on my replacement property to meet the debt replacement test?
Yes. An assumed loan is consideration you give and offsets debt you shed, the same as a new loan; see liabilities assumed or taken subject to.
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.
- 12 U.S.C. 1701j-3, Preemption of due-on-sale prohibitions (Cornell LII)
- SEC EDGAR, commercial mortgage pass-through certificates prospectus (Form 424B2, filed September 30, 2025)
- 26 CFR 1.1031(b)-1, Receipt of other property or money in tax-free exchange (Cornell LII)
- IRS, Instructions for Form 8824 (2025)
- IRS, Publication 535, Business Expenses (2022), Interest