If you find yourself in the middle of a failing 1031 exchange because either you cannot find suitable investment property to buy or you don’t want to buy what you have timely identified (under the 1031 Identification deadline) in the state of California the good news is that all is not lost. Just the opposite is true in fact. There is an alternate technique of deferring your capital gains tax payment. It is called the Internal Revenue Code Section 45 “Installment Sales” method, and it is the Unites States tax code’s hidden gem. With a bit of planning, with an Experienced Installment Sale purchaser, such as Tax Deferred Sales, LLC sale of your 1031 Account balance as an Installment Sale can actually present you with the ideal wealth management tool. At this point you may be asking yourself what is the Installment Sales Method and how does it work?
The following information will answer those questions for you. By definition, an Section 453 Installment Sale is “when an original owner disposes of real or personal property where at least one payment is to be received after the close of the taxable year in which the disposition occurs.” In essence, the income that the original owner receives is not recognized under the rules of the installment sales plan. That means the income is not taxable until the future point in time when the installment payments are received by the seller. Taxes are delayed into the future when and until the Seller receives its payments in the future. Often by delaying taxes into the future the Seller will also receive the very advantageous overall reduction of Sellers’ overall taxation liability. T
Although it may sound a bit complicated, the installment sale strategy has been around since the beginning of the Internal Revenue Code and is by far the best way to lawfully save a failing 1031 exchange. The method not only delays both state and federal capital gains taxes, it also delays recaptures depreciation in section 1250 of the tax code, and satisfies the new 3.8% net investment income tax (“NIIT”). That certainly is a lot of bang for your buck so to speak. In addition, real estate investors have the option to choose a profit distribution schedule that actually fits their needs for both income cash flow needs and tax deferral objectives. The choice is all yours as the Seller regarding the number of yearly payouts continue.
For example, if the profit from the sale of an investment property is $500,000, you may receive yearly $50,000 payments for ten (10) years, or yearly $100,000 payments for five (5) years. It is all up to you as the real estate investor you have great flexibility in controlling your distributions which can also be made monthly and thereby also controlling the amount of your tax burden to be paid. The installment sale program provides a great Seller Control in receiving funds, and paying taxes on those funds. Last but certainly not least; real estate sellers may also be able to access additional economic benefits through a tax-free loan in a separate transaction. Tax Deferred Sales, LLC (“TDS”( as a Installment Sale purchaser of failing 1031 Account balances, has the most expertise in these transactions as it is directed by an LLM Taxation attorney with 20 years of tax deferral expertise and Sellers of failing 1031 Exchanges have received favorable third party legal opinion letters in a TDS Installment Sale transaction.
In conclusion, deferring capital gains taxation on the sale of your appreciated assets will increase your net worth! Please contact Tax Deferred Sales today for more information or to get started with an installment sale plan. TDS has specifically developed a proprietary tax expertise Installment Sale transaction structure that is far more effective than a complicated 1031 transaction. Our team of experts specializes in providing customized strategies that delay tax impact. TDS takes great pride in assisting sellers of appreciated assets in deferring the capital gains tax that greatly enhances the ability to grow your net worth. Our company was founded by a LLM tax attorney with over 20 years tax deferral experience and expertise with a singular focus on assuring sellers delay of taxation.