Exchanging Thoughts

Seller Financing in a 1031 Exchange

Posted by Margo McDonnell on Wed, May 27, 2020

Sellers are sometimes asked to provide financing to the buyer of their property as part of the sale negotiations. Usually structured with payments spread out over a number of years, sellers can report the transaction as an installment sale under Section 453 of the tax code. The installment sale method would allow the seller to defer the gain over the life of the note. Taxes are paid based on the payments received each year and part of each payment is the return of your basis, part is your capital gain which will be taxed according to capital gains tax rates and the interest paid is treated as ordinary income.

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Topics: section 1031, 1031 Exchange, Seller Financing, Section 453, Installment Sale