What Happens at Tax Time When You do a Structured Sale?
It really is quite simple! It is nothing like the complicated reporting for a 1031 exchange since there is no exchange involved at all in a Structured Sale. Since the Structured Sale is an “installment sale”, it is taxed accordingly. At tax time, the seller’s CPA will use IRS form 6252 to report the income from the installment payments. IRS Form 6252 utilizes a simple formula to break down each installment payment into interest income, capital gains, and return of basis. Most accountants are very familiar with using this form because installment sales are becoming more and more commonplace. The seller gets a 1099 from the life insurance company detailing down to the penny what they have received and that is given to the CPA or tax preparer.
IRS Rulings and Case Law in Support of the Structured Sale
- Ruling allowing disposition of real property by Installment Sales
- Internal Revenue Code Section 453
- Ruling allowing substitution of obligors
- Revenue Ruling 75-457
- Revenue Ruling 82-122
- Wynne v. Commissioner, 47 B.T.Z. 731 (1942)
- Cunningham v. Commissioner, 44 T.C. 103 (1965), acq., 1966-2 C.B.4
- Ruling showing constructive receipt is avoided
- Treas. Reg. 1.451-2(a)
- Commissioner v. Tyler, 28 B.T.Z. 367 (1933)
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