Options for 1031 funds

2 Replies

Hey BP, I have an interesting opportunity in the near future and was looking for some knowledge. I currently own a rental property that I am considering selling. Net profit would be in the 15k range. I am seeing a property tomorrow where the seller is open to seller financing. Here is my question: If I move forward with the new property (seller financed) and sell my rental property, let's say in 3-4 months and put profits into a 1031, am I able to put those profits into the newly acquired property (seller financed) tax free? I hope this is not too confusing. If this is not allowed, can you suggest another strategy? Thanks in advance!

Not too confusing at all @Erik Schilling .  

The statutory order of a 1031 exchange is that you must sell first followed by your purchase. You may not use 1031 funds to pay down the note on a property you have previously purchased.  However there is a a way to accomplish what you're describing - called a reverse exchange.  What has to happen is that the 1031 intermediary has to take title to the new property as an "exchange accommodating titleholder".  then after you complete the sale of your old property you accept title from the intermediary.

The deal breaker on this is that reverse exchanges are relatively expensive and if you're only making $15K on the sale of your old property it is doubtful you would save any taxes if you do a reverse exchange.

However, if the seller of your new property is willing to owner finance, would they also be willing to do a lease option or contract with the contingency of the sale of your old property first?  If you could motivate them to do that then you could complete the sale of your old property and follow that with the regular 1031 to purchase the new property and then you would enjoy some significant tax  savings.

Thanks Dave Foster ! I see what you are saying. I'll see if the property is worth moving forward on (probably another post for feedback from BP community) and go from there. I appreciate the feedback!

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