Can I sell a note and 1031 it into a property?

[Logan Turner]

So I have a question for some smart people out there. I own a note (seller financing to a homeowner) and I'm interested in selling my note on a discount and then with the proceeds performing a 1031 exchange into a cash purchase on a rental house. Is this possible? Is a note purchasing a property a like kind exchange? Second question: what if I sell my note, and use the money to purchase the note that is on one of my rentals? Would this qualify? I own the note in my name but the rental is in my LLC. Thanks everyone! Looking for Opinions not legal advice.

[Bill Exeter]

Hi @Logan Turner, 

Unfortunately, the sale of a promissory note and/or other "paper" is not considered to be a sale of real estate and would not qualify for 1031 Exchange treatment. In fact, Section 1031 of the Internal Revenue Code specifically excludes "notes" from 1031 Exchange treatment.

The sale, conversion or hypothecation of the seller carry back note would trigger any deferred gain that might exist in the note.