Capital Gains Deferment

Defer the Tax & Keep Your Cash!

When selling their home, often Sellers can face as much as 30%-40% – or more – of their profit going to taxes. And that can add up to a lot of money.

But there’s a way you can walk away from your home closing with up to 93.5% of the funds agreed upon and defer paying tax for up to 30 years.

The monetized installment sale is a legal tool that typically falls under the radar. In fact, the average home seller usually hasn’t even heard of a monetized installment sale. Yet a monetized installment sale can be a great way to defer paying capital gains tax for up to 30 years.

What is a Monetized Installment Sale?

There are four players that are required to execute a monetized installment sale.

11

Seller

22

Buyer

33

Dealer

44

Lender

How Does It Work?

The procedure is actually quite straightforward:

(1) Seller sells the property to Dealer on an installment contract

After a Seller finds a Buyer for the sale of property, a Dealer is inserted between the two parties to facilitate the monetized installment sale. Like a traditional installment sale, the Seller sells the property to a third-party Dealer in return for a 30-year, interest only installment contract.

(2) Dealer sells the property to Buyer

At no mark-up, the Dealer sells the property to the Buyer in an all-cash, fee-simple interest sale.

(3) Lender issues Seller a 30-year, non-recourse, interest only investment business loan

An unaffiliated lender provides the seller with an unsecured loan in the amount of the sale price (not including fees – brilliance isn’t free). The loan has special characteristics that protect the seller from the bank.

(4) A series of escrows ensure note repayment from installment proceeds in a smooth, low maintenance process

Monetized Installment Sales are low maintenance. A series of escrows setup at inception automates the loan payment process.

The Dealer’s note and Lender’s note offset, and the Seller walks away with monies equivalent to the sale proceeds of the property disposition (less fess). No capital gains tax is paid until the loans are unwound, and the lender can’t pursue the Seller for non-payment!

This Sounds Too Good To Be True, Is This Really Legal?

Yes! The IRS issued a Memorandum from the Office of the Chief Counsel on Monetized Installment Sales in 2012, blessing the structure.

As a tax professional with decades of experience Koko is extremely familiar with this beneficial strategy and if it is suitable for your home sale – can help you execute it seamlessly. To learn more, contact us today, we’ll be happy to answer all of your questions!

Ready to learn more? Have additional questions? We are here to help, contact us today.