1031 and seller Financing

[Caleb Webster]

I have a 12 unit under contract that was supposed to be seller financed. The terms were 0% down for purchase price but we bring all rehab costs to escrow, 1 year term. The seller then discovers after talking with a 1031 advisor that if he does this, it will trigger the 180 day window. We also looked into a contract for deed situation but the advisor said that this too would trigger the 180 days. Conventional financing isn't an option at this point.

This doesn't make sense to me since it seems like you would only be hit with capital gains taxes when you fully receive your 'capital gains'. Does anyone else have experience with seller financing and 1031 exchanges?

[Christopher Phillips]

@Caleb Webster

It's based on when you relinquish the asset. If he does a deal with you, he no longer has the asset. Thus, triggering when he needs to either do a 1031 or start reporting the income from the sale on his taxes. Seller financing just spreads the pain across the years while the note is being paid off. 1031 would avoid all of that, but he would need to identify a new property within 45 days and close the transaction within 180.