On this More More Monday, we are looking at making an installment sale work with a 1031 tax-deferred exchange.
It is always best to receive all cash for the sale of a relinquished property in a 1031 exchange. For a variety of reasons, sellers are often asked to provide financing to the buyer of the relinquished property. Many times, the Note is a good investment vehicle for the Seller, especially since so many other investments have such low returns. However, if the Seller intends to complete a 1031 exchange, the amount of the Note is not like-kind property to real estate and is considered “boot” or taxable gain. The remaining portion of the net selling price can be deferred through the 1031 exchange.