Land Contract Tax Consequences for Sellers and how to 1031 Exchg

[Brice Hall]

Hoping a CPA or another person can provide some insight and definitive answers when it comes to land contracts, and tax consequences when selling real estate on land contract. 

Also, if an asset is held for under a year prior to selling on land contract, will this have different consequences than if the asset is held over a year?

Are there ways in which to structure land contracts to further benefit the seller, when it comes to taxes. e.g. an "installment land contract", a "lease with a purchase options", etc.

Lastly, is it possible, and if so, how would one take advantage of a 1031 exchange if selling an asset through a land contract?

Much appreciated in advance to those who share information and resources, particularly beyond "talk to your CPA". I certainly will do this, but hoping to gather general information that may be enough to decide going with a land contract vs. traditional sale.

Thanks!

[Dave Foster]

You said it @Nicholas Aiola, just like the taxation issue land contracts and 1031 face the same moving targets.  It can be done but you do have to be able to pick that point when "risk of loss" passes.  A sale in a land contract can be determined to have happened before the deed transfers if enough of the benefits and burdens of ownership have passed to the buyer that it is as if they own it.  The 1031 would be deemed to start on that date.  If the contract is tight enough then at signing of the contract a 1031 exchange could be started.

But the big problem is going to be how to get the cash to complete the 1031 exchange.  In order to completely defer all tax on a 1031 exchange you must purchase at least as much as you sell.  A land contract generally doesn't come with a significant down payment so the seller is forced to find funds from some place else to use in their replacement purchase.