1031 Seller Financing?

[Pete T.]

So I understand the general answer would be to discuss my personal situation w/ my CPA, but in general- how would it work if I wanted to use a 1031 to defer taxes on a property I sell, but do so via seller financing?  Would I only be able to put the down payment toward the next purchase and owe taxes on the rest of the profit?  Any input would be great.

[Dave Toelkes]

@Pete T. 

I seems that you have a fairly good understanding of how seller held financing would impact a 1031 exchange.  

The portion of the sale proceeds that your qualified intermediary receives in the form of a seller held note, is not like-kind real estate and, as such, is taxable boot.  The portion of the NET sale proceeds from a cash down payment minus selling expenses, could be held by the QI in an exchange escrow account and applied to a 1031 replacement property acquisition.  

If this is your plan, the question to answer is whether the tax savings for the portion of your sale profit that can participate in a 1031 exchange is large enough to offset the cost of the 1031 and still have enough money left over to make a partially deferred exchange worthwhile.