Q. If I sell a duplex, do I need to purchase another duplex or could I purchase a commercial property?
A. LIKE KIND EXCHANGE simply means you must sell and purchase investment property, as opposed to financial instruments (notes, stocks and bonds) or interest in an entity or partnership. You don't have to match the usage of the property but they all must be used for the production of income or held for appreciation. You could sell your duplex and purchase commercial real estate or sell raw land and purchase a house. It doesn't matter, as long as it is investment property and not your personal residence.

Q. How much do I need to spend on my replacement property?
A. EXCHANGE VALUE is what you have to meet or exceed in your purchase. It is calculated by taking the sales price and subtracting the closing costs, but not the mortgage expenses. You cannot simply use the proceeds (equity), or gains. You also cannot extract your expenses (or basis) from your proceeds. The IRS views debt relief to be the same as cash in an exchange, and any cash coming out of an exchange could be taxable. If you do decide to pull cash or not to replace debt relief, you still have a valid Partial Exchange. There are only certain times during the exchange when you can extract funds and you would not want to pull out any more than the gain you are deferring.