 John and Jane bought a Florida ocean front condo in 1979 for $195,000.
The condo has always been the second home for the Beach’s. The insurance rates and taxes have drastically increased over the last ten years. The Beach’s have negotiated the sale of the property for $950,000. The Beach’s recently sold their primary residence and were able to realize the full $500,000 capital gain exception. They want to sell the condo and receive the same tax benefits. However, the condo is not their primary residence and will receive no tax relief in a normal transaction. The Beach’s, with the help of their real estate agent and structured sale planner, have decided to use the structured sale product. They have paid the mortgage off and have no loans against the property. The following will take place at closing.
The Beach’s will receive $195,000 at closing. This represents their basis in the property. The remaining capital gain of $755,000 will be placed into the structured sale.
The Beach’s have set up a periodic monthly payment of $4,000 for 120 months. On the 121 month the remainder of the funds will be distributed in a lump sum of $520,800. Each installment payment received by the seller may consist of any or all of the following, non-taxable recovery of basis, taxable gain and/or interest.
The Beach’s were able to sell the property at its highest value and defer the capital gains taxes. They set up a payment stream to cover their fixed costs for the next ten years. They no longer have the hassle of the second home and have eliminated the high costs of maintaining the property.
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 $950,000
- $195,000 was paid in upfront cash
(representing a return of basis)
- $755,000 deferred via a Structured Sale.
Producing $4,000 per month for 10 years and a lump sum payment of $520,800 dollars on Ms. Beach’s 65 birthday.
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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 |
$195,000 |
$195,000 |
| Recapture |
0 |
0 |
| Gain |
$755,000 |
$755,000 |
| TAXES |
| (Federal 15%)* |
$113,250 |
$0 (Taxes Deferred) |
| (State 0% FL)** |
$ 0.00 |
$0 (Taxes Deferred) |
| Net To Invest |
$641,750 |
$755,000 |
* 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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