Replacement property fair market value must be equal to or greater than the fair market value of the relinquished property. If you wish to acquire property of less value, you may. But please speak with your tax advisor regarding possible tax consequences.
You must use all of your exchange proceeds from the sale of the relinquished property to acquire your replacement property. If you would like to receive cash for personal use, you must make arrangements prior to the disbursement of sale proceeds by the escrow closer. Under the exchange regulations, you may not have the ability to control or direct funds in any way once proceeds have been sent to the exchange facilitator. Remember, you should only use exchange proceeds to acquire real property. Speak with your tax advisor regarding possible tax consequences of taking exchange funds for personal use.
Your replacement property debt (mortgage) must be equal to or greater than your relinquished property debt (mortgage). You may acquire less or no debt on your replacement property, but you should speak with your tax advisor regarding possible tax consequences of "debt relief." The guidelines listed above are to be used to help you effectuate a Tax-Deferred Exchange. If you don't meet all the guidelines, you may still do an exchange, but you may be subject to tax on the difference. The IRS has defined several black and white areas, but there are many more gray areas, which are difficult to elaborate on without details about your specific tax situation. We highly recommend you seek specific tax advise from your tax advisor or attorney, particularly when attempting a partial exchange.