Creative 1031 Exchange

[Pete Harper]

Ok, I have a Creative idea for a 1031 exchange.

I own property in CA that I would like to sell on a lease-option basis. The buyer is willing to lease the property for a period of time. At the end of the lease they would like the option to purchase the property at a predetermined price. We haven’t discussed if the lease payments would be applied to the principal or not. I assume yes.

On my end I plan to 1031 exchange out of CA and purchase rental property in Texas. We did this on another property where I sold in CA in my personal name, did 1031 exchange and purchased property In TX in my personal name then transferred the property into an LLC. I understand this process.

The part I’m stuck on is the selling part with lease option. For 1031 will the IRS see the lease payments as income and therefore trigger the clock on 1031 exchange ?