Can a 1031 Exchange be done on Morby Method?
In this monologue, Mundo Sanchez explains why a 1031 exchange generally cannot be applied to the seller‑financing portion of a Morbius (Morby) Method transaction. He outlines the basic mechanics of a 1031 exchange—deferring tax by reinvesting the seller’s cash proceeds into a like‑kind property—and then shows that, when the seller finances part of the sale (e.g., a $300,000 seller‑note), those funds never become cash in the seller’s hands; they are simply a promise to the buyer. Consequently, only the actual cash the seller receives (the equity portion of the sale) can be rolled into a 1031 exchange. He illustrates this with a $1 million purchase example, noting that the seller would need sufficient equity beyond the seller‑financed amount to have any cash eligible for a 1031 exchange.
