Understanding Real Estate

Tax-Deferred Exchanges

Typically when the real-estate market softens, making it harder to sell, sellers often finance the purchasers themselves. THIS IS DANGEROUS!! Since the purpose of exchanging is to sell and roll over some or all of the sales proceeds into replacement property, any money pocketed is TAXABLE as a partial tax-deferred exchange (as we discussed earlier).
Unless the seller of the replacement property is willing to take over your promissory note (with a Deed of Trust) or Real Estate Contract you received from your buyer; the payments will go directly to you as TAXABLE INCOME. So you may want to compare the tax savings of waiting for an all cash buyer and do a total tax-deferred exchange, compared with the taxes you would pay on an installment sale (which is what seller financing is). Read my book to see other ways around this problem.