Take a Note on the sale of your property

You can sell your relinquished property using a Note to finance the sale.

It is possible for the note to be made out to the " Exchangor ".

However this Note is taxable and may not be used to buy replacement property.

If the Note is made out in the name of the Qualified Intermediary.

You will have four choices on how to to buy replacement property.

1.)  You can use it to acquire replacement property by trading it to the Seller for part of the equity in the new property ( that is you can spend it like it was cash ).

2.)  You can instruct the "Qualified Intermediary" to sell the Note to a investor ( you can negotiate this sale or have the Intermediary do it ) and add the amount realized to the exchange proceeds.

This will give you all cash to negotiate your replacement purchase.

It may be less desirable to do this because of the discount given on the sale of the Note.

3.)  A party related to the Exchangor such as a closely held Corporation or relative can either purchase the Note from the "Qualified Intermediary", or provide financing so that the Qualified Intermediary receives all cash at closing.

You should consult with your tax advisor regarding structuring this type of transaction.

4.)  You can wait until the end of the exchange and receive the Note back from the Intermediary.

This will result in the Note becoming " boot " and it will be taxable.

However, you will only have to pay tax on the amount received each year.    

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