1031 Exchange with Seller Financing as Boot

[David Alder]

I entered into a partial 1031 exchange in 2023. Sold a rental with ~$260K adjusted basis for $615K. Received cash of $480K which went directly to QI and accepted seller financing for the remainder $135K (note did not go to QI). Purchased replacement property for $1M using the full $480K cash to cover down payment and closing costs. My understanding is that the $480K qualifies for 1031 treatment and tax deferral. While the $135K note qualifies for section 453 installment sale treatment with the gain spread out during the payment period. 1) Is my understanding of this transaction correct? 2) How would I record this transaction on form 8824 and form 6252 (assuming those are the correct form to fill out)?

Thanks