---
title: Seller-Financing Options For 1031 Exchanges
description: An exchanger who elects to carry back a note on a relinquished property in a 1031exchange has two basic options to treat the note.
image: https://www2.1031dst.com/hubfs/1031%20Exchanges.jpg
---
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# Fortitude's Insights
[1031 Exchange](https://www2.1031dst.com/insights/topic/1031-exchange)
# [Seller-Financing Options For 1031 Exchanges](https://www2.1031dst.com/insights/daniel-raupp/seller-financing-options-for-1031-exchanges)
By [Daniel Raupp](https://www2.1031dst.com/insights/author/daniel-raupp) | 26, February 2016
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[Daniel Raupp](https://www2.1031dst.com/insights/author/daniel-raupp)
Tags: [1031 Exchange](https://www2.1031dst.com/insights/topic/1031-exchange)
An Exchanger who elects to carry back a note on a relinquished property in a 1031 exchange has two basic options to treat the note:
### **1. DO NOT include the note in the exchange and pay any taxes that may be due**
The Exchanger would receive the note as the Beneficiary at the closing and pay taxes on this portion of the capital gain under the Installment method (as specified in IRC §453). In this option, the note is made payable to the exchanger and is received by the exchanger at the closing of the relinquished property. The drawback is that capital gains taxes could become due in one lump sum if the note allows for prepayments or if a balloon payment is required.
### **2. Include the note in the exchange by initially showing the qualified intermediary as the beneficiary and possibly defer the capital gains taxes**
This option gives the exchanger four alternatives to try to use the note as part of the tax-deferred exchange. To avoid “constructive or actual receipt” by the exchanger, the intermediary is named as the beneficiary on the note. The alternatives are:
(**A) Put the note toward the down payment on the replacement property purchase. If the Seller accepts the Note as partial payment toward the purchase price, the Intermediary assigns the Note to the Seller and delivers it at closing.**
** (B) Exchanger purchases the note from the intermediary. Made during the exchange period, this can allow the intermediary to use the note’s proceeds for the purchase of the replacement property. Purchase of the note from the intermediary may include a discount to represent its fair market value at the time of purchase.**
** (C) Pay off the note before closing on the replacement property. Done during the exchange, this works only on short-term notes due within the 180-day exchange period. The payer pays off the note directly to the intermediary, who holds the note and adds the payoff to the existing proceeds in the qualified exchange account. When the replacement property is ready to close, all proceeds are delivered to the closing officer.**
** (D) Sell note on the secondary market. This replaces the note with cash, which is added to the qualified exchange account for purchasing the replacement property. Typically, the Note will be sold at a discount, and the discounted amount may be considered a selling expense.**
Many exchangers choose Option 2 because it allows for several tax-deferral alternatives without penalizing the exchanger. If none of the alternatives is successful, the intermediary can assign the note back to the exchanger, who will have all the tax benefits available through Option 1.
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This is for educational purposes only, does not constitute an offer to buy/sell securitized real estate investments, and is not meant to be interpreted as tax or legal advice. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. Please speak with your legal and tax advisors for guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC, an SEC registered investment adviser. Insurance offered through Concorde Insurance Agency, Inc. Fortitude Investment Group is independent of CIS, CAM and CIA.
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# [Daniel Raupp](https://www2.1031dst.com/insights/author/daniel-raupp)
Under Daniel Raupp's guidance since 2000, Fortitude Investment Group, LLC has guided clients into over $1 billion worth of securitized real estate investment offerings directly and indirectly, in both the DSTs for 1031 Exchanges and REITs. In the areas of real estate, tax advantaged investments, insurance, retirement, and estate planning, he is able to set up comprehensive, individually tailored client portfolios designed to help remove market volatility and maximize income potential without undue risk.
Inspired by his father’s dedication to customer service and hard work, Daniel directs a range of strategic initiatives in the firm to successfully leverage core competencies in real estate consulting, tax efficient investing, alternative investments, and operational excellence to create customer value. His credentials include a Series 7 General Securities Representative (GS) License, Series 24 Principal of General Representatives License, Series 63 Uniform Securities Agent License, and a Life/Accident and Health Agent License. [Check Daniel’s background on FINRA’s BrokerCheck.](https://brokercheck.finra.org/Individual/Summary/4079107)
This is for informational purposes only and is not an offer to buy/sell an investment. There are risks associated with investing in Delaware Statutory Trust (DST) and real estate investment properties including, but not limited to, loss of entire principal, declining market value, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This information is not meant to be interpreted as tax or legal advice. Please speak with your legal and tax advisors for guidance regarding your particular situation.
Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA) Fortitude Investment Group is independent of CIS, CAM, and CIA.
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