Does an investor have to spend all of the 1031 Exchange proceeds?

No, you do not have to reinvest 100% of your net sales proceeds, however, the amount that you do not reinvest will be subject to depreciation recapture and capital gain income tax. Only the amount that you reinvest will be tax-deferred. This is called a partial 1031 exchange and will result in, what is referred to as, mortgage boot and/or cash boot. Mortgage boot and cash boot are the taxable proceeds not utilized in the exchange. You will need to reinvest 100% of your net sales proceeds if you want to defer 100% of your tax liabilities.