1031 Exchange on Investment Property


M

Mark

I would like to liquidate a rental income property and defer
the gain. I've never lived in the property and have owned it
for several years.

I have an offer from someone who would like to purchase the
home and we've been discussing doing an installment sale
with a balloon payment in one year. This is primarily to
get the property sold quickly. The buyer can then obtain
permanent financing at his convenience.

Neither of us wants to do a long term installment sale.

I would like to do a 1031 exchange. The problem is that I
will not be able to structure an exchange since I believe
the home is "sold" in the eyes of the IRS once the mortgage
and note are signed. Unfortunately, I don't have cash to
purchase a replacement property until I receive the balloon
payment in a year.

I would appreciate any thoughts or opinions.

Mark
 
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D

David Woods, EA, ChFC, CLU

"Mark"
I would like to liquidate a rental income property and defer
the gain. I've never lived in the property and have owned it
for several years.

I have an offer from someone who would like to purchase the
home and we've been discussing doing an installment sale
with a balloon payment in one year. This is primarily to
get the property sold quickly. The buyer can then obtain
permanent financing at his convenience.

Neither of us wants to do a long term installment sale.

I would like to do a 1031 exchange. The problem is that I
will not be able to structure an exchange since I believe
the home is "sold" in the eyes of the IRS once the mortgage
and note are signed. Unfortunately, I don't have cash to
purchase a replacement property until I receive the balloon
payment in a year.

I would appreciate any thoughts or opinions.
You've effectively answered your own question. If you take cash or a note,
you can't defer the gain with an exchange. If you want to exchange, you
need to get it done in 180 days. One year is too long.
 
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L

Lynn Guini

You've effectively answered your own question. If you take
cash or a note, you can't defer the gain with an exchange.
If you want to exchange, you need to get it done in 180
days. One year is too long.
Consider having the buyer take an OPTION to purchase the
property at a future date (i.e. when he will have the money
to do so). Work with a 1031 Exchange Accommodator, and have
the option money held by the accommodator, so it can be
included in the 1031 exchange.
 

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