A Structured Sale is useful for investors who want to cash out of their real estate holdings, not using a 1031 Exchange or Tenant-in-Common transactions.
Issued to be considered when contemplating a Structured Sale
- There is a risk that favorable tax treatment may be disallowed in the future.
- The payments are fixed. Once the structure is established, there is no way for the seller to access the funds. Otherwise, there can be no tax deferral.
- The tax deferral strategy itself could backfire if the seller's personal tax rate is higher in the future than the rate in effect at the time of sale.
- Installment Sale (as defined by IRC Section 453 and IRS Publication 537) in which the sale of the property is in one tax year while part of the proceeds is payable over subsequent tax years; taxable gain is recognized in the tax year payment is received.
- Structured Settlement (traditionally a personal injury litigation mechanism for funding a payment stream) in which one party funds an annuity who intern guarantees the payments.
By using a third-party assignment company, an annuity can be constructed to meet the payout requirements of the property seller, and the buyer funs the annuity in a lump sum payment.
While the structure does not avoid taxes, it does provide a tax-deferral mechanism
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