The Basics of a structured Sale
June 22nd, 2007 categories: Investing in San Diego Real Estate, San Diego Real Estate, Selling San Diego Real Estate
The Structured Sale is a vehicle to defer a big tax bite into more bite size portions. A seller who owns appreciated real estate holdings that they acquired through the a 1031 Exchange and would prefer to Cash Out, the structured sale may be just the idea whose time has come.
The way it works is similar to the installment sale. A Structured Sale combines all of the tax-referral 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.
I put a flow chart in to the previous post for reference. It shows the way the basic structured sales works and the the parties involved. This Structured Sale vehicle is particularly beneficial to those individuals who are ready to “cash out” of the appreciated asset, such as real property.
In preparation for converting that asset into income for retirement and/or estate planning purposes, the structured sale might be the preferred way to proceed. Because its a 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. Since it is guaranteed income, they don’t have the same risks associated with an installment sale.
For the real estate investor, even the small investor, this is a good tool to understand and seek out if the time comes when you want to “cash out“. I advise investors to always get the advise of qualified tax and financial planning consultants to determine what is best for their own particular financial and tax needs.
