Defer and reduce your capital gains taxes while creating a customized guaranteed income source that works best for you and your family.
Considering your exit options.
When searching for ways to avoid capital gains taxes, many people come across a common strategy such as IRC section 1031 exchanges, which are touted by real estate agents, commercial brokers, title companies, and
investors but for good reason. If done correctly with a Qualified Intermediary (QI), 1031 exchanges are a wonderful tax deferral tool for sellers looking to continue their real estate investment journey. However, Structured Installment Sales (SIS) represent a viable yet under-discussed alternative for maximizing profits and minimizing a seller's tax burden without the need to acquire new property, unlike 1031 exchanges or Delaware Statutory Trusts.
Investing in real estate always carries certain risks, such as fluctuations in market value and rental income, tenant problems, vacancies, taxes, and regulatory changes.
A SIS can help keep sellers keep their income within a desired tax bracket by spreading out their income.
As a business owner, when planning your eventual exit, it's important to take into account your future
cash flow needs. Many entrepreneurs are counting on selling their business and using those funds for retirement. Selling your business doesn't mean you have to say goodbye to the income it generates. Consider how much income your property or business is currently providing you personally, and how much you'll need after the sale closes. Ask yourself, "What is the asset paying me that I'm trying to replace?"
This presents a tremendous opportunity for investors and business owners seeking to “cash out” in a tax-efficient manner without having to dive back into another investment. Investors with the flexibility to stagger their income—perhaps by deferring pension or
Social Security payments at the same time they are selling a business or investment property—are prime candidates for structured installment sales.
It's easy to get caught up in the excitement of the sale, but it's important to remember that the tax consequences, particularly capital gains tax, play a big role in the overall financial outcome.
1.Tax Deferral
With a SIS, the seller can defer capital gains and state income taxes on the sale by receiving payments over a period of time from an annuity contract, rather than receiving a lump sum at closing. This can provide a significant tax adntage for the seller by not only lowering their taxable income in the year of sale but their overall tax liability as well.
2. Guaranteed Income & Rate of Return
A SIS provides a dependable income stream for the seller, which can be an attractive option for those looking to supplement their retirement income or to receive a steady income stream.
3. Easy to Implement
Working with the right professional a SIS can easily be implemented into the purchase agreement with just a few additional documents, making it a simple and straightforward strategy for all parties.
4. Creditor Protection
A seller can protect their sales proceeds from market volatility, and eliminate the negative aspects of a traditional installment sale, with the full backing and financial strength of the life insurance company providing the annuity. This guarantees the payments are safe and secure.
5. Risk Mitigation
A traditional installment sale relies on the buyer to make payments, which can be risky for the seller. With a SIS, the seller doesn't have to worry about the buyer defaulting on payments.
6. Cost Efficient
We do not charge for assisting in these types of sales. There are no upfront fees or consulting charges for either the seller or buyer. A one time fee from the assignment company is around the same as a 1031 Qualified Intermediary would charge.
 Tip: Take the time to find a knowledgeable lawyer, CPA and financial advisor who can guide you through the process and help you make the most of your sale. |
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| SIS Option | Lump Sum Option |
Capital Gains Taxes | $368,000 | $60,060 |
State Income Taxes | $68,000 | $0 |
NII Tax | $0 | $0 |
Total | $60,060 | $436,000 |
Any questions?
Don’t hesitate to reach out. I'm always available for a quick call to go over how a SIS can benefit you in your property or business sale!
It is important to note that the SIS strategy should be considered after discussing with a tax or financial advisor to ensure that it is the right strategy for a specific situation.