Dealing with Seller Financing in a 1031 Exchange…

Investors who decide to carry a  note on the sale of their investment property have a few options  if they are also doing a 1031 Exchange.

1. Do not include the note in the exchange. If the note is not included in the exchange, taxes will be payable using the installment method of accounting.
2. Include the note in the exchange and defer taxes owed.

With option #2, investors have several alternatives for attempting to use the note as part of the exchange. It is important that Asset Exchange Company be named as the beneficiary of the note in order to avoid any constructive receipt issues.  The alternatives available include:

1. Use the note as consideration for the replacement property.
2. Replace the note with cash.

•     “Buy” the note with your own cash
•      Sell the note on the secondary market
•     Have the note paid off prior to close of escrow

Seller financing can be an attractive option in today’s market.

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This entry was posted on Monday, October 29th, 2007 at 10:18 pm and is filed under Uncategorized, 1031 Tax deffered exchange. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.