A client of ours recently sold a house under a contract for deed with the balloon going due in 2019. The client wanted to know if it would be possible to do a 1031 exchange on the property after receiving finial payment for it in 2019? That's our topic for this article.
Contract for Deed
If you already 'sold' a property on a contract for deed, can you do a 1031 exchange once you get paid-off on the seller-backed financing? Possibly not because the IRS may no longer view you as the equitable owner for tax purposes. Here are some questions to consider:
- Are you the holder of a lender's interest now?
- Who has the risk of loss if the property is damaged or destroyed?
- Who has the obligation to pay taxes and insurance?
- Who has the ability to depreciate or deduct expenses related to the property?
- Is the contract for deed vendee in exclusive possession of the property?
- If the contract for deed vendee constructed improvements on the property, who would own the improvements?
The answers to these questions will help you determine your viability of a 1031 exchange. As always, it's important to consult with a qualified intermediary about your 1031 situation.
- 1031 Hotline: If you have questions about contracts for deed, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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