Structured Installment Sale
A Structured Installment Sale is a tax-deferral strategy for selling assets like real estate or businesses. By opting for installment payments instead of a lump sum, the seller receives a steady income stream and reduces tax liability by spreading capital gains tax over multiple years.
Straight forward tax deferral
No management fees
High internal rate of return
Used by buyers to offer a more attractive bid
Used by sellers to defer capital gains
Secure
A structured installment sale is funded through highly rated insurance companies.
Cost Effective
This strategy is one of the most inexpensive tax-deferral strategies available. The costs include a small one-time assignment fee and the billable hours of your tax professional.
Tax Planning
Structured installment sales help defer capital gains. By turning a lump sum into an installment sale, a seller can can lower their tax bill by spreading out recognition of the sale.
The Process
Buyer and seller sign a Purchase and Sale Agreement (PSA) along with an Addendum, agreeing to periodic payments.
The buyer designates an assignment company to manage the periodic payment obligations, and in exchange for payment from the buyer, the assignment company agrees to make the necessary payments to the seller on the buyer’s behalf.
Using the funds supplied by the buyer, the assignment company buys an annuity from an insurance company. The insurance company issues the annuity contract to the assignment company, agreeing to make payments that correspond to the periodic payments in the purchase and sale agreement. The assignment company directs the insurance company to forward those payments to the seller.
F.A.Q.s
Qualified sales include: Businesses, books of business, real estate, land and other assets like artwork. A structured installment sale must be set up at the time of sale; a seller cannot retroactively enter into this arrangement once funds have transferred.
For detailed info visit IRC 453 & IRS Pub. 537
When can I use a Structured Installment Sale?
Yes, the seller can greatly benefit from the tax deferral advantages. A buyer can leverage a structured installment sale to make a more appealing bid, offering the seller a larger total payout while emphasizing the tax benefits of installment payments and the security of a lump sum sale.
Can both a seller and buyer benefit from a Structured Installment Sale?
The main difference in a structured installment sale is its funding and security setup. In a standard installment sale, the seller depends on the buyer for scheduled payments. In a structured installment sale, the buyer transfers a lump sum to an assignment company and in turn purchasing an annuity, offering the seller greater security.
What’s the difference between an installment sale and a Structured Installment Sale?
