Question involving Capital Gains, 1031 Exchange, Seller Financing

[Kristopher Rodriguez]

Hello to all! Thank you in advance for reviewing my question. My question involves three parts: Capital Gains tax liability, a 1031 exchange, and seller-financing. Here is the scenario:

- Investor purchases a property for $100,000

- Investor sells property for $300,000

- Investor provides seller-financing for $100,000 with interest-only payments for two years, then a final balloon payment

- Investor receives $200,000 NET from the sale

Questions:

1. Is the capital gains tax liability during the year of the sale $100,000 or $200,000?

2. If the tax liability is $100,000 because the additional $100,000 principal has not been received yet, is the additional $100,000 taxed during the year of the balloon payment?

3. Can a 1031 exchange occur only once during this transaction (using the $200,000 the seller NETs on the sale date)? 

4. Can the additional $100,000 principal balloon payment be exchanged when it is received two years later?

5. Does this scenario essentially force the seller to pay capital gains on the $100,000 principal balloon payment in the future, with no opportunity to use the money towards a 1031 exchange?

Thank you!!