Monetized Installment Sale – An Alternative to § 1031 Like-Kind Exchange

1031 LIKE-KIND EXCHANGE

A 1031 Exchange allows you to avoid paying capital gains taxes when you sell an investment property and reinvest the proceeds from the sale within certain time limits in a property or properties of like kind and equal or greater value.

A common problem is finding a replacement property within the first 45 days after the sale of your relinquished property. Additionally, you must complete your 1031 Exchange transaction, which includes the conveyance of title to all of your like-kind replacement properties that you intend to acquire no later than 180th calendar day following the close of the relinquished property sale transaction. To make matters worse, the IRS generally does not allow extensions of this time.

 

WHEN DO I NEED TO CONSIDER M453?

When an owner prepares to sell a low-basis capital asset, the owner should consider selling the asset – Real property of any kind, stock in a privately held business, partnership interest, personal residence, art or antique collection. (Stocks or securities traded on an established securities market are not eligible for M453)

 

WHAT DO I GET FROM M453?

Seller walks away with $$$ equivalent to the sale proceeds of the asset disposition less fees. An all-capital-gain installment sale of the asset, with the capital-gains tax deferred for as long as 30 years, with no net tax cost to the seller for that entire period. M453 provides complete freedom for the seller to invest the monetization loan proceeds as the seller chooses.

HOW DOES M453 WORK?

  1. Seller sells asset to Dealer on an installment contract.

After a seller finds a buyer for the sale of property, a dealer is involved between the two parties to facilitate the monetized installment sale. Like a traditional installment sale, the seller sells property to a third-party dealer in return for a 30-year, interest only installment contract.

  1. Dealer immediately sells property to buyer.

Dealer then immediately sells the property to the buyer at no mark-up.

  1. A 3rd party lender issues seller a 30-year, non-recourse, interest only investment business loan.

A 3rd party lender provides the seller with an unsecured loan in the amount of the sale price less fees.

  • The lender cannot compel the seller to pay more on the loan than the monies deposited into the seller’s escrow from the dealer
  • Guarantee to the seller that the seller will not have to repay the loans from monies other than those from the dealer deposited into the seller’s escrow
  • The parties agree that the lender will not write off the loan or report to a credit agency as it is a private loan
  1. A series of escrows ensure note repayment from installment proceeds in a smooth, low maintenance process

 

IS M453 LEGAL?

YES, The IRS issued a Memorandum in 2012.

 

 

WHO HAS USED M453?

 

EXAMPLE.

Example One.

Seller has a rental property that was bought at $1,000,000 20 years ago. The property was fully paid off and Seller can sell the property at $2,200,000.  In this case, Seller is facing at least $1,200,000 capital gains subject to capital gains taxes (about $420,000) and by using M453, Seller can effectively reduce such taxes due to 30-year deferral.

Example Two.

Seller has a rental property that was bought at $1,000,000 20 years ago. The property was fully paid off and Seller can sell the property at $1,300,000.  In this case, Seller is facing at least $300,000 capital gains subject to capital gains taxes (about $105,000). M453 wouldn’t work as well due to relatively low capital gains.

 

Best Qualifier
1. Sales Price is more than 2M
2. Capital Gain is more than 50% of Sales Price
3. Your cost basis is higher than loans (ex. Purchase Price of 1M: Loan obtained is less than 500K)

 

NEED TO SET UP A CALL TO DISCUSS YOUR SALE?

Please use the link below: Contact Us Now

 

Kindly, correctly specify the followings:

Name

Email Address

Phone Number

Description of Sale of Your Assets

  • Purchase price
  • Estimated sales price
  • Outstanding loan balance
  • Have you found a buyer?
  • Status of sales contracts, if any
  • Any other information that’d be helpful
  • Source of Referral