Seller Financing A Home We Bought With 1031 money - tax impact

[Skyler Massey]

I'm trying to find out the tax implications of a seller finance I'm considering. We just bought a home a few weeks using primarily 1031 money from a home we just sold. We bought this home as a rental but found out that the HOA won't to allow us to rent. As such, we're considering selling it using seller financing. Here are the details:

• We bought a house in February 2017 for $58,000.
• We rented it for a year and then sold it in March 2018 for $109,000. We did about $8k of rehab.
• We put $52k related to the deal in a qualified intermediary for a 1031.
• We pulled the $52k out and bought anther investment home with cash for $72,500 last month.
• The HOA won't let us rent it, so we're looking at selling the home.
• We essentially entered into a contract to sell the home at $105k but with this deal, we'd have to owner finance it.
• Terms:
  • Sells price $105k
  • Down: $5k
  • Interest 7%
  • 10 year term
• I'm trying to figure out the tax implications of this transaction. Most importantly (i think), I'm trying to determine if my holding period would begin with the purchase of the $58k home we bought last year, or if it would change to the home we bought last month. I assume this would create a big difference on my tax liability since it would be cap gain vs ordinary income. Maybe I'm way off.
• I understand the interest would be ordinary income, but I'm trying to figure out how the gain from the two different properties would be handled. One home would have only been owned for a couple months and the other just over a year.

Any help would be very much appreciated.