Updated almost 7 years ago on . Most recent reply
1031 and lease option?
hi,
If the seller doesn't want to wait unit the 1031 exchange (the selling of the 1st house before buying 2nd), can a buyer use the lease option to secure the deal before the 1031 take place?
I know there's some strict restrictions on 1031,just dunno the lease option will violate them.
Thanks,
Tommy
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- Qualified Intermediary for 1031 Exchanges
- St. Petersburg, FL
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@Tommy C. is right. The lease option can be a great way to lock up a property without taking title to it so it can still qualify as a replacement property in a 1031 exchange. All of our reverse exchanges include those exact elements - an option to purchase and NNN lease.
The thing you want to watch out for is a concept the service calls "risk of loss passing". This is the point where the bundle of rights you have as the lessor/optioner of the property are so comprehensive and strong that in essence the ownership/control of the property has already transferred to you.
The application of risk of loss passing is seen more in land contracts and lease to deed situations but given that option contracts can look very differently you'll want to pass it by your QI first.
- Dave Foster
