Structured installment sales are a powerful financial planning tool that allows sellers of appreciated assets—such as real estate, businesses, or other capital investments—to defer capital gains taxes while generating a predictable income stream. This approach combines the flexibility of an installment sale under IRS Section 453 with the reliability of structured settlement payment streams.
How does a structured installment sale work?
Instead of receiving a lump sum at the time of sale (and paying taxes on the full gain in that year), the seller agrees to accept the sale proceeds over time in installments. The buyer pays a third-party assignment company, which then funds an annuity to distribute scheduled payments to the seller. This setup provides tax deferral benefits and creates a fixed income stream.
Key benefits of structured installment sales include:
- Tax Deferral: By spreading the gain over multiple years, sellers can reduce their immediate tax burden and potentially remain in a lower tax bracket.
- Financial Security: Guaranteed, fixed payments provide peace of mind and make long-term planning more manageable.
- Customization: Payment structures can be tailored to match personal financial goals—whether receiving monthly income, annual payments, or larger sums at specific intervals (e.g., for retirement or college tuition).
- Risk Reduction: Because a highly rated insurance company often funds payments, there is added assurance compared to relying on the buyer’s ongoing creditworthiness.
Structured installment sales are especially useful for individuals nearing retirement, business owners selling their companies, or real estate investors looking to transition out of active management. However, working with experienced tax advisors and settlement professionals is essential to structure the transaction correctly and meet IRS compliance requirements.
Contact Sage for Structured Installment Sales
In an era where tax efficiency and financial stability are more important than ever, structured installment sales offer a compelling alternative to traditional lump-sum deals—transforming a taxable event into a strategic financial opportunity. For more information about structured installment sales, contact your Sage Consultant today.