How is it different if you sell a house with lease option

[Deepika Tandon]

Hello BP I have a SFH in TX, I want to sell it but I found out that my tenants are willing to buy. Problem is that they have a credit situation( divorce history)but there income is stable now. If I choose to do lease option, how does it affect 1031. Please help me understand.

[Dave Foster]

@Deepika Tandon, A properly structured lease with a separate option to purchase does not have to affect your 1031 in the slightest.  Your 1031 will begin when you actually pass ownership.  At that time your proceeds go into escrow and you will use them to purchase your new property. You can accept a payment as consideration for an option personally.  However you will not want to receive any payments that are structured so that they act as actual payment for the house. In that event it is very likely that they could be considered as taxable boot.  Make sure it looks and acts like a lease with an option to purchase at agreed upon terms within an agreed upon time frame. and not like a land contract or lease/purchase contract.