DEFER CAPITAL GAINS

without a 1031 Exchange

THE STRUCTURED SALE

TAX DEFERRAL, “EXIT STRATEGY”, SECURED INCOME 

Sellers of real estate, whether it’s vacant land, a multi-family unit, commercial building or other property,* can now complete a cash sale while enjoying the tax-deferred advantages of an installment sale, but without the financial risk of unsecured payments!   

Whatever the reason, retirement, ownership-management headaches or investment diversification, the Structured Sale is for many, a better alternative to a 1031 Exchange.

 The cash sale by Agreement or Addendum is modified into a unique type of installment sale, whereby specific installment payments are secured by an annuity issued by a highly rated life insurance company. Funds that would have been lost to taxes are put to work in the Structured Sale annuity, generating more income to the Seller by using the pre-tax sale dollars.  It’s this conservation and redirection of the taxes otherwise payable that makes the Structured Sale attractive to a variety of Sellers.

Taxes are paid only on the installment payments, as and when received by the Seller, in the Seller’s tax year. Depending upon the Seller’s tax situation and payout selected, the guaranteed gain in payments received by the Seller may offset a large portion, and in some cases, all of the taxes paid.                                   

Illustrative Example

$750,000 Deferred by the Structured Sale

(First payment to begin about one year after closing) 

$72,325 per year for 15 years           Guaranteed Payout:  $1,084,875         + $334,875

Using these values as a basis for comparison, a Seller taking cash and then investing the sale amount,  net after-tax, would have to earn as much as 8.70%, every year for 15 years*, just to equal the guaranteed payout of the Structured Sale annuity.  The internal rate of return for this example is approximately 5.01% and once purchased, the internal rate of return would be guaranteed for the 15 years. 

                 INVESTING THE                                                 THE STRUCTURED SALE ANNUITY

    SALE AMOUNT, NET AFTER-TAX                   vs.         $72,325 ANNUALLY FOR 15 YEARS       

                                                                                                                                                                   + $334,875

$567,750 net amount available to invest          ($182,250)         $750,000 into Structured Sale Annuity  

        24.30% Sale year tax bracket                                                   24.30% 1^st year tax bracket  

        25.00% 2^nd year and thereafter                                                25.00% 2^nd year and thereafter 

~A Seller must make up the ($182,250) lost to sale year taxes,

PLUS THE GUARANTEED GAIN OF THE ANNUITY PAYOUT~

Although this illustration uses California as the transactional state which imposes an income tax, Sellers domiciled in states without an income tax still need to consult with their tax advisor prior to making any decision.  The Structured Sale is available to Sellers in all fifty states.  Individual results will vary by the Seller’s situation and state of domicile.   

The Structured Sale can be used in the all cash sale, including borrowed funds, or with a large down payment and a Seller’s Carry Back Note.  The Seller decides how much cash to keep at closing, as well as how much to defer by installment payments.  As each Seller’s financial needs are unique, a schedule of installment payments can be “tailored” to meet those needs. 

There are only a few short-form documents needed to establish the Structured Sale.  However, time is of the essence for those Sellers already in escrow, as the paperwork needs to be completed prior to closing.

                                           ALREADY IN ESCROW?  TIME IS OF THE ESSENCE  

WHO CAN BENEFIT FROM THE STRUCTURED SALE?

• ·    Alternative to 1031 Exchange; avoid replacement property pressures-no second mortgage.
• ·    Sellers who want tax deferral and income that’s not affected by stock market fluctuations.
• ·    Sellers needing to sell because of poor health; obtain financial security and peace of mind.
• ·    Divorce Sales; for the non-working spouse, safe and predictable, management free income.
• ·    Stockholder/partnership buyouts.  Larger payouts over time using today’s dollars.
• ·    Sellers who want to defer taxes and income on any portion of a sale.   

THE SELLER HAS FINANCIAL SECURITY INDEPENDENT OF THE BUYER

NOT YOUR TYPICAL ANNUITY

When most people think of an annuity, it is usually of a type that accumulates funds over time, pays a single stream of income payments, or is responsive to the stock market.  The Structured Sale annuity utilizes both immediate and deferred payments that are fixed and determinable with no reinvestment risk to the Seller.

Flexible in its design, the Structured Sale allows a Seller to take advantage of:

• Designing their own schedule of Installment Payments, “tailored” to meet their financial needs. 
• Installment Payments that are secured by an annuity and are “early payoff proof”.
• Payments that can begin in about one month from closing or be deferred up to 20 years.
• Payments made for most any specific period of time, or in certain situations, for a lifetime.
• A single lump sum payment or multiple streams of payments are allowed.
• Each payment stream can vary in amount, timing and duration.
• Payments made monthly, quarterly, semi-annually, annually or in any combination. 

The Structured Sale offers the Seller the ability to create their own schedule of installment payments, tailored to their specific needs.  Short-term or long, the Structured Sale can be designed to meet nearly any financial objective.    

*Pursuant to Internal Revenue Code Section 453, Installment Sales.  Comparison uses California state income tax.  (See Cash vs. The Structured Sale on the website) 07/2008

This article is intended to be for informational purposes only and may not be construed as or relied upon as tax or legal advice.  Always consult with your tax and legal advisors.  Copyright 08/01/2008