Accepted Answer

Under section 1031 the general rule is that any cash received by the taxpayer whether at the sale of the Relinquished Property or at purchase of the Replacement Property will be taxed as cash boot.
Presuming the exchange is complete and the refinance is not taking place as part of the exchange than this would not conflict with Sec 1031 exchange.

In Fredericks v. Commissioner, TC Memo 1994-27 the IRS argued that the taxpayer received taxable boot in the amount of the proceeds of a refinancing occurring one week after the taxpayer entered into an agreement to convey the relinquished property. The Tax Court disagreed, stating that the taxpayer did not receive the refinancing proceeds from the Qualified Intermediary as part of the exchange, but received them from a third party lender as a result of the refinancing.

You can refer to an article at the link below for addtl info
https://www.aicpa.org/pubs/taxadv/online/apr2005/briskin.htm

Let me know if you have any question.

Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.

Edited by RD on 11/5/2009 at 7:35 PM

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Answered:	11/5/2009

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