Question: 1031 exchange

You don't mention if it is a personal residence or other personal use property. If it is, a Sec. 1031 exchange can't be done. A 1031 exchange is the exchange of property held for productive use or investment, not personal use.

Also, if it's your personal residence, up to $250,000 ($500,000 on a joint return where you both lived in the residence) of gain can be excluded from income if you lived in and owned the house for two of the last five years.

I apologize. I should have mentioned that it is a rental. Please let me know.

Seems to me that the "Real Estate First Trust Deeds" couldn't possibly be *like-kind* property - i.e. real estate - in the exchange, and that the gain on the sale (even if it were structured properly as an exchange) would be totally taxable. Are the first trust deeds considered to be real estate? I think they're mortgage notes, am I right?

A real estate deed of trust is simply security for a loan - essentially the same as a mortgage. If debt on property qualified as a like-kind exchange, why would anybody do installment sales?

I believe you are right.