Structured Sale

Structured Real Estate Sale

A structured real estate sale is a special type of installment sale pursuant to Internal Revenue Code Section 453. Installment sales permit home sellers to defer gains on the sale of real estate to the tax year in which the related sale proceeds are received. Structured real estate sales allow the seller of an asset to pay taxes over time while having the payments guaranteed by a high credit quality alternate obligor, who accepts assignment of the buyer’s periodic payment obligation. Said real estate transactions can currently be done as small as $100,000.

In a structured real estate sale, rather than the home buyer paying the installments, the buyer pays cash, some of which is used as consideration for a third party assignment company to accept the payment obligation. The assignment company then purchases an annuity from a life insurance company with high financial ratings from A. M. Best. In addition, a properly handled transaction will avoid issues with constructive receipt and economic benefit.

While negotiating the installment payments, the home seller is free to design payment streams with a great deal of flexibility. The seller recognizes capital gain in each year an installment payment is received. Interest is imputed and taxed annually, even in years during the contract where no installment payments are received. Taxation is the same as if the buyer were making installment payments directly.

Structured real estate sales are an alternative to a section 1031 exchange, which defers recognition of capital gain, but forces the home seller to continue holding some form of property. Structured real estate sales work well for home sellers who want to create a continuing stream of income without management worries. Retiring business owners and downsizing homeowners are examples of home sellers who can benefit.

The structured real estate sale must be documented in the transaction documents and money must be handled in such a way that the ultimate recipient does not constructively receive the payment until it is actually paid. For the buyer, there is no difference from a traditional cash-and-title-now deal, except for additional paperwork. However, because of tax advantages to the seller, structuring the sale might make the buyer's offer more attractive. Because the buyer has paid in full, the buyer gets full title at time of closing.

There are no direct fees to the buyer or seller to employ the structured real estate sale strategy. The structured settlement specialist who implements the transaction is paid directly by the life insurance company that writes the annuity.

The internal rate of return is comparable to long-term high quality debt instruments.

Currently, Allstate Life is the only structured settlement annuity company whose product is available for the structured real estate sale transaction, but by the end of 2006, two other companies have said they will be in the market.

If you are a real estate investor who is interest in understanding a structured real estate sale, simply contact us via email at StructuredSale@VirginiaIsForTownhomes.com it would be our pleasure to lend you the expertise you need to make a wise real estate investment.