How it works

To help expand your knowledge on how a Structured Installment Sale is carried out we broke down how it works in three stages.

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Turning Typical Sales Into Structured Installment Sales

See how a Structured Installment Sale easily works into the purchase and sale agreement process giving the seller a more simplified deferral alternative provided by a major life insurance company allowing them to avoid constructive receipt of funds and spreading their proceeds from the sale over a number of years they choose.

How It Works

Installment sale + Buyer Assignment = Structured Installment Sale

Discover the power of deferring simply

Looking for an effective, safe and uncomplicated way to significantly lower your tax liability when selling your property or business? Learn how a Structured Installment Sale delivers an attractive tax deferral option that benefits your pocket book. On our "How it works" page we utilize MetLife for examples.

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Assignment Process
Buyer Assigns Obligation To MetLife
The assignment agreement turns a typical installment sale into a Structured Installment Sale. Where instead of the buyer being obligated to make periodic payments the buyer transfers 100% of the funds and the payment obligation to the life insurance company.
01. Buyer

Buyer assigns the periodic payment obligation to MACI as the new Assignee. 

02. MACI

At closing, escrow transfers the amount of the purchase price as stated in the agreement to MetLife Assignment Company, Inc

(MACI)

03. MACI

MACI uses the lump sum to purchase an annuity contract matching its acquired periodic payment obligation.

04. MetLife

Met Tower Life issues an annuity contract to MACI.

05. MetLife

Met Tower Life distributes periodic payments to the seller according to the schedule in the purchase agreement

06. Close of Escrow

The Buyer receives title at the close of escrow and because there is no constructive receipt there is no tax obligation to the seller until the year in which the seller receives payments.

MetLife Video Overview

Total Tax Bill: $436,000

Lump Sum

Seller receives the proceeds in full at the time of sale.

  • Capital Gains Tax: $368,000

  • NIIT Tax: $68,000

  • State Income Tax: $0

Based on 20 % Federal Capital Gains Rate 

Total Tax Bill: $60,060

SIS Option

Seller chooses a SIS to defer their proceeds and lower their tax liability.

  • Capital Gains Tax: $60,060

  • NIIT: $0

  • State Income Tax: $0

Years Structured:15

Upfront Cash: $600,000

Annual Payment: $243,333

Details
  • Selling Price: $4,250,000

  • Adjusted Cost Basis: $1,900,000

  • Gain: $ 2,150,000

Real Estate Sale in Florida

After consulting with her legal, financial and tax advisors, Mary was advised that a SIS would be beneficial. This solution would reduce her associated capital gain and net investment income taxes while providing periodic payments to supplement her income.

Note: For simplicity

  • Property is not subject to a mortgage.

  • Rate of return and additional income not factored in.

Frequently Structured Types Of Assets

Residential Real Estate

  • Single Family rental properties including:

  • Condos

  • Townhomes

  • Duplexes

  • Multi-family

Commercial RE

  • Office building

  • Apartment complex

  • Restaurants

  • Shopping centers

  • Storage facilities

Industrial

  • Warehouses

  • Distribution center

  • Manufacturing buildings

  • Showrooms

Privately Held Businesses

  • Construction

  • Financial

  • Manufacturing

  • Healthcare

Professional Practices

  • Law firm

  • Dental

  • Veteranarian

  • Medical

Land

  • Farms

  • Ranches

  • Timberland

  • Orchards

  • Agriculture

Real Estate Case Study

The example below is a basic illustrative case to show the application and benefits of a Structured Installment Sale VS taking the proceeds in full at the time of sale. Every case will vary based on the clients unique situation.

Step 02.

Buyer Source of funds

Buyer Source of Funds Form | Final Quote | SIS Rate Lock

When selecting a buyer, because this tax-advantaged option requires cooperation from the buyer we highly recommend communicating to potential buyers the seller's intention to use a Structured Installment Sale for tax deferral purposes.  We work with all parties and their respected professional team in advising throughout the process.

Buyer Tip:

Make your offer more attractive by adding a SIS option that considers the sellers possible capital gain tax liability. A SIS acts as a normal sale for you and an appealing installment sale for the seller. In a competitive sellers market using a SIS is a great way to stand out.

Consult

After consulting with their legal and tax advisors, the seller chooses a Structured Installment Sale for their property or business.

Suitability

Suitability form evaluates seller's financial suitability and if the asset meets installment sale tax treatment.

Quotation

We run a quotation for the seller illustrating the payment options they desire using the net sales proceeds they want allocated to the structured sale for deferral.

Step 01.

Setting Up The Framework

We assess and oversee proper implementation of all required forms and documents needed to ensure compliance and acceptance from the annuity provider. To qualify for a Structured Installment Sale the property or business must meet the requirements for Installment Sale tax treatment as laid out in IRS publication 537.

Step 03.

Documents Added To Contract

We provide additional documents needed to properly facilitate a Structured Installment Sale. The documents all go into escrow with the purchase and sale agreement.

Addendum: Agreement to periodic payments between buyer and seller, outlines payment streams as well as upfront cash and premium amount.

Representation & Acknowledgment: Transaction document noting IRS compliance, tax and legal advisory and good faith.

Assignment Agreement: Outlines the assignment of the obligation to the insurance company.

Addendum

Agreement to periodic payments between buyer and seller, outlines payment streams as well as upfront cash and premium amount.

Assignment Agreement

Outlines the assignment of the obligation to the insurance company.

Representation & Acknowledgment

Transaction document noting IRS compliance, tax and legal advisory and good faith.

Lump Sum

If seller receives the proceeds in full at the time of sale.

  • Capital Gains Tax: $368,000

  • NIIT Tax: $68,000

  • State Income Tax: $0

Based on 20 % Federal Capital Gains Rate 

Total Tax Bill: $436,000

SIS Option

If seller chooses a SIS to defer their proceeds and lower their tax liability.

  • Capital Gains Tax: $60,060

  • NIIT: $0

  • State Income Tax: $0

Years Structured:15

Upfront Cash: $600,000

Annual Payment: $243,333

Total Tax Bill: $60,060

Details
  • Selling Price: $4,250,000

  • Adjusted Cost Basis: $1,900,000

  • Gain: $ 2,150,000

Real Estate Sale in Florida

After consulting with her legal, financial and tax advisors, Mary was advised that a SIS would be beneficial. This solution would reduce her associated capital gain and net investment income taxes while providing periodic payments to supplement her income.

Note: For Simplicity

  • Property is not subject to a mortgage.

  • Rate of return and additional income not factored in.

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© 2022 Settlement Planners Lic #0775349          Private Policy

A Structured Installment Sale is not considered investments, furthermore Settlement Planners Inc does not provide tax advice or legal advice. This information is for informational purposes only and is not meant as tax or legal advice. Clients should consult with their tax professional or legal advisor prior to implementing this process or entering such transactions. 

Settlement Planners Inc.
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