A "Structured Sale" is an improved version of the traditional installment sale provisions of IRC �453. Instead of receiving a lump sum cash payment upon the sale of the property, the seller receives installment payments spread over a number of years and the gain is deferred over the life of the note with taxes only due when payments are received. A Structured Sale combines the security of a cash sale with the tax benefits of an installment sale.

Unlike a traditional installment sale, the Structured Sale requires only minimal cooperation from the buyer at the time of sale, with no ongoing involvement. In an installment sale the Seller must rely on the buyer's financial   ability to make the future payments, while in a Structured Sale payments are secured by a third-party assignment company, similar to a structured settlement. The Structured Sale also allows the Seller to customize the payment stream to maximize their benefits while receiving a pre-tax guaranteed rate of return on principal.

Examples When a Structured Sale May Be Beneficial:

• Personal residence is sold for a gain larger than the primary exclusion of $250,000 for single taxpayers and $500,000 if married, filing jointly.

• Sale of a business use or investment asset but Seller wishes to trade down in value and split his funds between a 1031 exchange and a structured sale.

• Seller does not want to acquire another property.

• Vacation homes that fail to meet the safe-harbor provided by section 1031 regulations.

• Sale of goodwill or going concern of a business which is never eligible for a 1031 exchange.

• Coupled with a 1031 exchange or without, can help retiring business owner defer gain when selling and   provide a steady income stream.

• Transfer of non-publicly traded stock or a partnership interest which is never eligible for a 1031 exchange.

• Rescue a failed 1031 exchange due to the inability to identify replacement property or acquire the identified property. On the 46^th or 181^st day, the structured sale method could be taken if properly planned in advance.

Additional Benefits:

• The deferred gain could keep the seller in a lower tax bracket and possibly avoid the Alternative Minimum Tax (AMT), Pease Limitations, Personal Exemption Phase-outs and 3.8% Medicare Contribution Tax on   unearned income reducing his overall tax liability.

• Can work with the sale of real property as well as personal property assets.

• Qualifies for deferral of Pennsylvania income tax.

There are a few situations where a Structured Sale has minimal benefits and may not be advisable:

• The sale of inventory;

• Most of the gain is depreciation recapture under section 1245;

• The property is highly leveraged; or

• There is an immediate need for cash, although it is possible to structure an arrangement that would allow a taxpayer to borrow against their funds without triggering a taxable event.  

Wise investors and business owners have used structured sales and 1031 tax-deferred exchanges to help accomplish their investment and business objectives. With the assistance of their advisors, the sky really is the limit.

To learn more, contact one of our Exchange Officers.