Installment Sale

GIMME A TAX BREAK

The Old Fashion Installment Sale

For those of you who may contemplate disposing of a property, you have the opportunity to either trade a property on a Section 1031 tax-deferred exchange or to consider the gifting of the property into a CRT (Charitable Remainder Trust) in exchange for a generous current income tax deduction for the residual charitable value.

Another way to dispose of a property on which you will have a very large capital gain is to use the installment method of sale. You need to be careful and have adequate safeguards drafted into the sales contract. You don’t want to take a small down payment on real property, transfer the title and then learn later that the buyer has sold the property and skipped town without paying you the balance owed on your contract.

That is why you use an attorney, an escrow and a title officer to get your lien properly recorded against the deed. Let’s assume you have all of that handled properly. Then you and the buyer can work out the terms of the payments.

It is important to remember you are only limited by your imagination when it comes to setting the terms of the payout. Each case is unique and you should discuss it with a qualified CPA and or CFP before you finalize the deal. If you are still working and earning a large salary for the next couple of years, you might want to push the bulk of the payments back until the year after you retire.

If you have a large windfall income this year or next, you can structure the deal so that you get little, if any, payment on the contract in that year.

You can see that it is NOT required that the payments be uniform each year. You can take 5% in one year and 25 % or more in another year.

If you have a question regarding the tax consequences of the disposition of your property or would like to discuss tax deferral options, you can have a free consultation by calling 858-487-5751 or go to our web site at www.yourcpa.net

10-18-07