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 out of pocket expenses
Guaranteed 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 via treasuries & bonds.
Cost Effective
This strategy is one of the most inexpensive tax-deferral strategies available. The costs includes a small fees that come out of the principle, no out of pocket expense 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?
IRS info Regarding Installment Sales
Section 453
Section 453 of the Internal Revenue Code (Title 26) outlines the rules for reporting income from installment sales, allowing taxpayers to recognize income as payments are received rather than all at once in the year of sale. It specifies conditions under which the installment method can be used, exceptions, and calculations for determining the taxable portion of each payment... TITLE 26—INTERNAL REVENUE CODE .
Publication 523
IRS Publication 523, "Selling Your Home," explains the tax rules for selling a main home, including how to determine if the sale qualifies for a capital gains exclusion (up to $250,000 for individuals or $500,000 for married couples filing jointly) and how to calculate taxable gain or loss. It covers special situations like installment sales, business or rental use of the home, and deductions for real estate taxes or home energy credits... Publication 523 .
IRS Form 6252
IRS Form 6252, "Installment Sale Income," is used to report income from an installment sale, where payments for property are received over multiple tax years, calculating the taxable gain for each year based on the installment method. It applies to non-inventory, non-dealer property sales and ensures proportional income recognition as payments are received, per Section 453 of the Internal Revenue Code.... IRS Form 6252 Installment Sale Income .
Publication 537
IRS Publication 537, "Installment Sales," provides guidance on how to report income from installment sales, where payments are received over multiple years, under Internal Revenue Code Section 453. It explains the installment method, eligibility, calculations for taxable gain, and special rules for dispositions or related-party sales. .... IRS Publication 537 .
