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Real Estate and 1031 Exchange

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Real Estate and 1031 Exchange

When you are thinking about selling highly appreciated real estate properties, the Capital Gain tax can have a significant impact on the net income you keep from your sale.

A Structured Installment Sale strategy may be able to provide the tax savings and guaranteed income you’ve been looking for.

That’s because a Structured Installment Sale is really an installment sale with guaranteed payments spread out over the number of years that you choose. That means taxes are deferred until the income is actually received. With a little planning, working with your tax advisors, your taxes may be dramatically reduced.

A Structured Installment Sale agreement can easily facilitate the requirements of multiple partners with multiple needs. It is NOT an all or nothing proposition. Sellers can receive a portion of their proceeds in cash and structure the balance, including lump sum payments, over any number of years from two to 30 or more. Any and all options are available, depending on the seller’s specific needs. In fact, payment streams can be scheduled to occur on a monthly, quarterly or annual basis.

All future payments are guaranteed. With a Structured Installment Sale, there is NO risk of buyer default and payments are not subject to fluctuations in the market.

When you’re looking for certainty in an uncertain world, a Structured Installment Sale can provide it. Paying less in taxes is always a benefit as well.

1031 Exchange

You can’t talk about real estate investing without considering a 1031 Exchange. A 1031 Exchange provides a great way to defer capital gain taxes on the sale of appreciated assets, but there are strict requirements that need to be met in order to qualify.

As it turns out, there are four situations where a Structured Installment Sale Strategy may preserve or enhance your ability to defer taxes.

1. Contingency Fallback

Changing market conditions can make it impossible to find the right exchange property. The right property can fail to pass inspection or the title may be clouded. Or the financing can fall through at the last minute for any number of reasons. Whatever happens, if you miss the deadlines, the taxes are immediately payable. However, the inclusion of a brief Structured Installment Sale contingency provision in your 1031 Exchange Agreement can preserve your option to defer taxes in the event things don’t work out as planned.

2. The Boot

Clients can also use a Structured Installment Sale strategy to cover the “Boot” when they execute a 1031 Exchange for a property of lesser value. That way, they can defer and potentially reduce the taxes on the remaining proceeds.

3. Seller Tax Protection

Sometimes a willing seller backs out of 1031 Exchange after realizing the tax consequences they will face after the sale. A Structured Installment Sale strategy can be used to enable the Seller defer and potentially reduce taxes on the property they are selling to complete a 1031 Exchange.

4. 1031 Property Portfolio Cash Out

After years of building a tax-deferred portfolio of properties, some clients may want to cash out without triggering an immediate capital gain tax bill. They can continue to defer and potentially reduce their taxes after the sale by using Structured Installment Sale strategies.

Contact us to find out more.