Structured installment sales come from the structured settlement industry. This industry helps people manage large legal settlements like personal injury or wrongful death cases. Insurance companies who had expertise in structured settlements, took the principles of installment sales and developed the structured installment sale product.
Where did the ‘Structured Installment Sale’ come from?
Can I retroactively enter into a structured installment sale after the sale has occurred?
No. It is very common to for people to start looking at tax deferral methods once they see the upcoming tax bill. Unfortunately once the seller has ‘constructive receipt’ they are no longer eligible for installment sale tax treatment. To successfully enter into a structured installment sale the transaction must take place at the time of sale.
A beneficiary can be named so that the installments continue, the beneficiary can be changed through out the payment time period.
What if I die?
Can the payment schedule be changed after issuance?
No, once the buyer and seller negotiate payment terms and the sale takes place, the payments cant be accelerated or slowed down.
Tax deferral is a financial strategy that allows individuals or businesses to postpone paying taxes on income or investments until a future date. This delay can result in potential tax savings, as taxes are typically paid later, often at a lower tax rate or after growth on the deferred amount.
What is tax deferral?
Can a structured installment sale be an alternative to a 1031 exchange?
Yes, a structured installment sale can be used when a seller is struggling to complete a 1031 exchange. The structured sale is attractive to sellers looking to defer a large capital gain hit when selling property.
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?
Can both a seller and buyer benefit from 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.
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?
What is a monetized installment sale?
Monetized installment sales have been flagged by the IRS on its "Dirty Dozen" list due to their potential for abuse in tax avoidance schemes. A monetized installment sale is a transaction where a seller exchanges an asset for a long-term installment note to defer capital gains taxes, while simultaneously borrowing against the note to receive immediate cash, with the loan repayments aligned with the note’s payments.
Yes, farmland is eligible for installment sale treatment. Farmland also sits in a unique position as its exempt from the interest penalty that other assets are faced with when sold over $5 million.
See IRS pub. 537