Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
Can I finance the sale of my property with a seller carry back note and still 1031 Exchange into a replacement property?
Yes. However, to have a full tax deferred exchange all notes must be paid by the buyer and the acquired property must close within the 180 day period. If the notes are not paid within 180 days then the portion of the exchange proceeds in the 1031 Exchange can be exchanged for like kind property and the funds from the note are classified as an installment sale and are taxable when received.
Example 1
Relinquished property sells for $500,000. Buyer pays $200,000 cash and seller gives a $300,000 carry back note with a term of 3 months. The $200,000 is placed in the 1031 Exchange account and the $300,000 note is made payable to the Exchange Accommodator. When the 3 month term is up the buyer pays the $300,000 to the Exchange Accommodator and the seller buys the replacement property for $500,000. This is a fully deferred exchange.
Example 2
Relinquished property sells for $500,000. Buyer pays $200,000 cash and seller gives a $300,000 carry back note with a term of 3 years. The $200,000 is placed in the 1031 Exchange account and the $300,000 note is made payable to the Seller. Seller then buys replacement property for $200,000 and receives payment on the note in installments. This is a partial exchange and the note installment proceeds are taxable when received.
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, author and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and South Florida markets.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com