The Basics of a Structured Sale and Why You Should Know About It

The Structured Sale found within IRS Code Section 453 can be a useful financial planning strategy for sellers of appreciated residential real estate holdings acquired through a 1031 Exchange. This is an ideally suited tax deferral vehicle for baby boomers and retirees that want to cash out but also wants to defer the big tax bite.  A Structured Sale combines all of the tax-deferral benefits associated with a traditional Installment Sale, while providing guaranteed interest-bearing income payments and lump-sum distributions over a period of time in the form of an annuity.

The financial advantage of a Structured Sale when compared to an immediately taxable sale is generated from the ability to defer capital gains taxes to some point in the future, thereby leaving more funds available to work ( earning a guaranteed interest rate ) on behalf of the seller over time.

This Structured Sale as a vehicle is particularly beneficial to those individuals who are ready to "cash out" of the appreciated asset, such as a business or of real property, in preparation for converting that asset into income for retirement and/or estate planning purposes. Because of this guaranteed income, it may fit their need for a consistent, stable, and predictable income.  This idea is especially useful as it might apply to circumstances such as transitioning a parent or themselves into retirement-oriented or even "assisted" living situations. Real Estate Investors are typically capable of creating larger incomes to meet their needs by deferring the capital gains taxes that would otherwise be 100% due in the year of the taxable sale, and can do so on a guaranteed basis with no future interest rate or investment volatility risk that would associated in the Installment Sale.

As with all tax and legal issues, it is essential that the Investor seek the advice of knowledgeable tax and legal authorities before making decisions affecting their investments.