Many taxpayers ask the question: if my transaction involves seller financing, does that rule of the option of doing a 1031 exchange?
The short answer is: not necessarily.
If you sell investment real estate and agree to receive part of the purchase price over time through a promissory note or installment arrangement, a 1031 exchange may still be possible. However, this situation may complicate the exchange because the seller typically wants to reinvest all of the equity into the replacement property to maximize their capital gains tax deferral.
The good news is a 1031 exchange isn’t an all or nothing game. Depending on the numbers, a partial tax-deferred exchange may still be an option. Or, a seller may be able to bring additional cash to the replacement purchase to make up the shortfall and pursue full tax deferral.
The key is to run the numbers prior to closing and involve your tax advisor early in the process to avoid any potential issues.
Get Help Throughout the 1031 Exchange Process
Section 1031 of the Internal Revenue Code is available for all US taxpayers to take advantage of. With it, you can defer capital gains taxes on the sale of qualifying real estate as long as you redeploy your net proceeds into a replacement property of equal or greater value. Work with a qualified intermediary from CPEC1031, LLC on your next exchange of like-kind property and start deferring your capital gains taxes today. Contact us at our Minneapolis office to learn more about the benefits of section 1031 and see how we can help you through the 1031 exchange process.
Start Your 1031 Exchange: If you have questions about 1031 exchanges, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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