When I exchange 1031 properties, should I give carryback financing to the purchaser of my relinquished property?
If possible, you should avoid taking a note as a part of the purchase price of the relinquished property. The note will become boot and subject to tax, without some tricky maneuvering: You might use the note as part of the payment for the replacement 1031 properties, but the seller to you may want all cash and, in any event, is likely to be reluctant to accept a note from a stranger. You might structure the note as a short-term note to be paid in full to the qualified intermediary during the 180-day exchange period, but you still will be bearing credit risk. You might sell the note in the secondary market, but typically it will be at a steep discount.
