Yes. However, to have a full tax-deferred exchange all notes must be paid by the buyer and the acquired property must close within the 180 day period. If the notes are not paid within 180 days then the portion of the exchange proceeds in the 1031 Exchange can be exchanged for like-kind property and the funds from the note are classified as an installment sale and are taxable when received.
Example 1: Fully Deferred Exchange
- Relinquished property sells for $500,000.00.
- The buyer pays $200,000.00 cash and the seller gives a $300,000.00 carry back note with a term of 3 months.
- The $200,000.00 is placed in the 1031 Exchange account and the $300,000.00 note is made payable to the Exchange Accommodator.
- When the 3-month term is up the buyer pays the $300,000.00 to the Exchange Accommodator and the taxpayer (seller) buys replacement property for $500,000.00.
This is a fully deferred exchange.
Example 2: Partially Deferred Exchange
- Relinquished property sells for $500,000.00.
- The buyer pays $200,000.00 cash and the seller gives a $300,000.00 carry back note with a term of 3 years.
- The $200,000.00 is placed in the 1031 Exchange account and the $300,000.00 note is made payable to the Seller.
- The seller then buys replacement property for $200,000.00 and receives payment on the note in installments.
This is a partial exchange and the note installment proceeds are taxable when received.
