Exhausting the 1031 Exchange Option Before Converting into an Installment Sale

Deferred Sales Trust Installment Sale

It is a common and prudent practice to exhaust the 1031 exchange option before converting into a Deferred Sales Trust (installment sale), so that sufficient like-kind replacement property investments with debt may be received to off-set any debt relief you may have over your basis. This is a method of fixing MOB (Mortgage Over Basis) to maximize the tax efficiency of your transaction. The end result is that it becomes a part 1031 exchange, and part installment sale for tax purposes

Develop a Plan

You should develop a solution or plan that entails your investing some portion of the 1031 funds into one or more 1031 syndicated investments (DST - Delaware Statutory Trusts) to cover the debt relief, and then put the rest into a deferred sales trust.

DST Debt

The debt in a DST - Delaware Statutory Trusts comes part and parcel with the investment and is not recourse to the beneficial owners, so you do not have personal liability for the loan, but the properties are encumbered. You are deemed to have taken the debt for tax purposes by purchasing the investment subject to the pre-existing financing put on by the syndicator or sponsor.

  • 1031 Hotline: If you have questions about 1031 exchanges and installment sales, feel free to call me at 612-643-1031.

Defer the tax. Maximize your gain.

© 2017 Copyright Jeffrey R. Peterson All Rights Reserved