1031 Exchange Question

[Sree Todu]

I am in the process of selling my ranch home property, and I've found a promising buyer. They're interested in paying 50% of the purchase price in cash and financing the remaining 50% through owner financing over three years. 

However, I'm considering utilizing a 1031 exchange to reinvest the entire sale proceeds into another property after closing. My concern is that if I proceed with the owner financing arrangement for 50% of the sale price and pay off the loan later, I might face significant tax liabilities. Does anyone have suggestions on how to best leverage a 1031 exchange in this situation to maximize the benefits of the full sale price? Thank you in advance for your time and timely help. TOD

[Bill B.]

You do the 1031 instead of the seller financing. When you do a 1031 you have to spend more than the sale and invest all “cash” received. 

An expert like @Dave Foster could tell you if there’s anyway to pull it off if you have the extra 50% in cash laying around. (I assume you owe nothing, or at least less than 50% as your mortgage will have to be paid off when you sell, not when the buyer finishes paying.)

My understanding is you sell $400k property with seller financing. Buyer puts down $200k and makes payments. You had a $150k loan, so after $20k in closing costs you  only get $30k.  Your 1031 purchase would have to be over $380k ($400k minus selling costs) and you would have to put $180k down on new purchase. (Net selling price minus loan.).  
  .  
‘I assume this person is offering 10-15% more than you could get in a regular sale? If not, pass or go with a regular sale. If so, you could consider that tax savings. If you have all the cash in hand to complete the 1031. 

But I’m sure Dave will tell you if it’s possible and explain it better.