Seller wants to 1031 exchange on a morby method.

[Nicholas Stout]

This transaction began as a straightforward Morby Method structure, but the seller has since expressed a desire to complete a 1031 exchange. I’m trying to determine whether this is feasible within this framework.

If anyone has successfully executed a Morby Method transaction in conjunction with a seller’s 1031 exchange, I would greatly appreciate the opportunity to learn from your experience and understand how you structured it.

Thank you in advance.

[Dave Foster]

@Nicholas Stout, Positives and negatives about this method aside, the sticky point for this transaction would be that the seller who wants to do a 1031 exchange is carrying a note on their sale.  The requirement to defer all tax in a 1031 is to use all of the proceeds from the sale in their replacemennt property purchase.  This is going to be an amount of cash, and a note from the buyer.  

So, that seller will have to either

1. Accept the note and pay the tax on it.

2. Let the note go into the 1031 exchange and either

.    -sell it from the 1031 account on the open market (huge discount and not. likely) or

.    -replace the note inside the 1031 account with cash from some other source.  

If they do the latter then they have the cash in the 1031 account to complete their exchange.  And the note they now hold outside the 1031 exchange is tax free except for the interest portion.