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Unlocking Tax Benefits with Structured Installment Sales

Unlocking Tax Benefits with Structured Installment Sales

In this post, MetLife Sales Director Phil Petite breaks down the intricacies of structured installment sales and how they can benefit sellers and buyers.

A Tax-Saving Strategy for Sellers: Structured Installment Sales (SIS)

Are you a homeowner looking to downsize but worried about hefty taxes on your property’s appreciated value? Structured Installment Sales (SIS) are a unique solution that might be the answer to your tax concerns.

Understanding Structured Installment Sales:

At its core, SIS involves selling assets on an installment basis with periodic payments backed by an insurance company. The key benefits include deferring capital gains tax and ensuring guaranteed installment payments over time.

With SIS, sellers can choose how much they want upfront and what they’d like to receive via periodic payments. Plus, it’s not just limited to real estate; it can apply to various assets like goodwill and intangible assets. The goal is to spread tax payments over the years rather than paying a lump sum upfront.

The Benefits for Sellers and Buyers:

One of the most significant benefits for sellers is the opportunity to defer and potentially lower capital gains, net investment income, and state income taxes associated with the sale. By choosing SIS, sellers only pay taxes in the year they receive installment sale payments.

For buyers, SIS can make their bids more attractive in competitive markets while reducing their administrative burden when making periodic payments to the seller.

MetLife’s Unique Approach:

MetLife’s SIS solution stands out for being the first to use an onshore assignment company, providing comfort and familiarity to buyers and sellers. Two US-based entities, Met Tower Life and MetLife Assignment Company, Inc., are involved in the transaction.

When Structured Installment Sales May Not Be Suitable:

While SIS offers significant advantages, some scenarios may not make sense. For instance, if the IRS imposes an interest charge on deferred tax liability for payments exceeding $5 million, SIS might not be the ideal choice. However, exceptions exist, such as personal use of property and farming businesses.

A Case Study: Saving on Taxes with SIS:

Here is a hypothetical case study to consider. Mary, a Florida resident, is looking to sell her home. By choosing SIS and taking a portion upfront with the rest as periodic payments, Mary could save nearly $376,000 in taxes compared to a lump sum.

Contingent Liability Explained:

But it’s important to understand the concept of liability in the context of SIS. In simple terms, it means the buyer becomes responsible for making the seller whole if the insurance company fails to make the periodic payments. This language is required to ensure the transaction is categorized as an installment sale under federal tax law.

Where to Find More Information:

If you’re interested in exploring SIS further, easily connect with a Ringler consultant to get additional information on Structured Installment Sales by starting your search here: Find a Structured Settlement consultant

Listen to the Ringler Radio Podcast on this topic here: Ringler Radio Installment Sales Podcast

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