I am a member of a limited partnership (family based) of which I am the general partner. The partnership recently sold a piece of raw land that I would like to exchange. I found a replacement property that is a bank owned foreclosed house. The relinquished property had a loan on it and in order for the loan not to be considered as boot I am told that I need to make sure to acquire a loan that is at least the same amount as the relinquished property had. The problem that I have is that this bank will not finance partnerships in general. A friend suggested that I could finance the property from a private lender and as far as the bank is concerned this would be a cash deal, and that the private lender could even be a related party as defined by the IRS (myself or other members of my partnership).

Can I finance the partnership transaction by using my existing line of credit on my house to take out a lump sum and loan the partnership that sum in order to buy the house, or is that considered a related party transaction? The house will strictly be used as a rental and not for any personal use.

See answers in italics below. 

Jbash:

I am a member of a limited partnership (family based) of which I am the general partner. The partnership recently sold a piece of raw land that I would like to exchange. I found a replacement property that is a bank owned foreclosed house. The relinquished property had a loan on it and in order for the loan not to be considered as boot I am told that I need to make sure to acquire a loan that is at least the same amount as the relinquished property had. The problem that I have is that this bank will not finance partnerships in general. A friend suggested that I could finance the property from a private lender and as far as the bank is concerned this would be a cash deal, and that the private lender could even be a related party as defined by the IRS (myself or other members of my partnership).

Yes, related party loans are perfectly O.K.   You should make sure that the loan is properly documented with a note and deed of trust or mortgage and is secured by the property that you are acquiring. 

Can I finance the partnership transaction by using my existing line of credit on my house to take out a lump sum and loan the partnership that sum in order to buy the house, or is that considered a related party transaction? The house will strictly be used as a rental and not for any personal use.

Yes, you could do this.  The best structure from a 1031 exchange perspective would be to take an advance (draw down) on your line of credit and then lend the money from yourself to the family limited partnership.  I would make sure that the loan is fully documented with a note and deed of trust or mortgage against the property that you are acquiring.