A client of ours recently sold a house under a contract for deed with the balloon going due in 2019. The client wanted to know if it would be possible to do a 1031 exchange on the property after receiving finial payment for it in 2019? That's our topic for this article.
Contract for Deed
If you already 'sold' a property on a contract for deed, can you do a 1031 exchange once you get paid-off on the seller-backed financing? Possibly not because the IRS may no longer view you as the equitable owner for tax purposes. Here are some questions to consider:
Are you the holder of a lender's interest now?
Who has the risk of loss if the property is damaged or destroyed?
Who has the obligation to pay taxes and insurance?
Who has the ability to depreciate or deduct expenses related to the property?
Is the contract for deed vendee in exclusive possession of the property?
If the contract for deed vendee constructed improvements on the property, who would own the improvements?
The answers to these questions will help you determine your viability of a 1031 exchange. As always, it's important to consult with a qualified intermediary about your 1031 situation.
Start Your 1031 Exchange: If you have questions about contracts for deed, feel free to call me at 612-643-1031.
Defer the tax. Maximize your gain.
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