 What follows is a real life example of how a structured sale can assist in closing a sale.
The following arrangement is a win-win for all of the parties involved in the transaction. This transaction involved a married couple with an apartment building in the Midwest. The apartment building nets them $2,000 per month in income, taxed at the ordinary income rate (approximately 31%).
The seller’s objectives in selling the property was to eliminate the hassle of managing and owning an apartment building, more effectively utilize the retained equity in the apartment building, and provide a steady stream of income. Through the structured sale, the couple could replace an unsteady income stream taxed at ordinary income rates with more predictable income stream taxed at the lower capital gains rates. They were able to defer capital gains tax and utilize it to provide a potentially higher return than other fixed investments utilizing only the net amount after taxes. It allowed the sellers to utilize the built up equity to create a lifetime income with none of the ups and downs of the market. Finally and most importantly, they did not have to have an ongoing relationship with the buyer or depend on his credit standing.
In this transaction, the sale price was $1,000,000. $200,000 was paid in upfront cash (representing return of basis and depreciation recapture) and $800,000 deferred via a Structured Sale. The $2,000 per month of rental income was replicated, but taxed at the lower capital gains rate (and no ongoing hassle of ownership), with an $800,000 lump sum at the end of 20 years.
The table to the right shows what it looks like to the seller when you compare a lump sum transaction versus the Structured Sale >>>
Click here to find out what happens at tax time when you do a Structured Sale.
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| In This Transaction: |
- Sale price was $1,000,000
- $200,000 was paid in upfront cash
(representing return of basis and
depreciation recapture)
- $800,000 deferred via a Structured Sale.
The $2,000 per month of rental income was replicated, but taxed at the lower capital gains rate (and no ongoing hassle of ownership), with an $800,000 lump sum at the end of 20 years.
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This is what it looks like to the seller when you compare
a lump sum transaction versus the Structured Sale:
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Lump Sum |
Structured Sale |
| Basis |
$150,000 |
$150,000 |
| Recapture |
$ 50,000 |
$ 50,000 |
| Gain |
$800,000 |
$800,000 |
| TAXES |
| (Federal 15%)* |
$120,000 |
$0 (Taxes Deferred) |
| (State 3% IL)** |
$ 24,000 |
$0 (Taxes Deferred) |
| Net To Invest |
$656,000 |
$800,000 |
* Federal Capital Gains varies from year to year, and depends upon whether gain is classified as long or short-term capital gains.
** State capital gains rates vary from 0% to 12%, depending on the state.
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