FAQ – StructuredSales.org

Frequently Asked Questions

What is a structured installment sale and how does it work?

A structured installment sale is a tax-deferral strategy under IRS Section 453. It allows a seller to receive payments for a business or real estate sale over several years rather than in a lump sum.

How is a structured installment sale different from a normal installment sale?

In a traditional sale, you rely on the buyer's ability to pay you back over time (default risk). In a structured sale, the buyer's obligation is assigned to a third-party company that funds the payments via an investment of your choice highly-rated insurance annuity.

Can I use a structured installment sale for my residence or business?

Yes. Structured installment sales are commonly used for commercial real estate, high-value primary residences, and business sales.

Structured Installment Sale vs. 1031 Exchange: Which is better?

A 1031 Exchange requires you to reinvest in "like-kind" real estate, while a Structured Installment Sale allows you to exit real estate entirely tax deferred.

What are the risks of a Structured Installment Sale?

The primary risk is inflation risk (fixed payments may lose purchasing power) and illiquidity (once the schedule is set, it's usually non-assignable and cannot be accelerated).

Is the assignment company safe? What happens if they go bankrupt?

Structured sales use highly-rated (A+ or higher by A.M. Best) life insurance companies like MetLife or Independent Life. The payments are guaranteed by the insurance carrier, which is a highly regulated entity with significant reserve requirements.

Can I use a Structured Installment Sale for a failed 1031 Exchange?

Yes. This is often called a "Section 453 Rescue." If your 45-day identification period fails, you can direct the Qualified Intermediary (QI) to move the funds into a structured installment sale to avoid a massive "tax hit" in a single year. (Treasury Regulations §1.1031(k)-1(j)(2))

How are the payments taxed (Interest vs. Principal)?

Each payment is split into three parts: 1) Tax-free return of basis, 2) Capital gains (taxed at 15-20%), and 3) Interest income (taxed at ordinary income rates).

What happens to the payments if the seller dies?

The payments do not disappear. They are inherited by the estate or named beneficiaries. The tax-deferral benefit continues for the heirs as they receive the remaining installments.

How do I report a Structured Installment Sale on my tax return?

You must use IRS Form 6252 (Installment Sale Income). You will report the sale price, your basis, and the profit percentage. Each year you receive a payment, you will record the portion that is a return of basis (tax-free), the portion that is capital gain (taxed), and any interest income (taxed as ordinary income).

Is there an "Interest Charge" if I sell for less than $5 million?

No. The "Large Transaction" interest charge under Section 453A only applies if your total outstanding installment notes exceed $5,000,000. For most small to mid-market business owners, this means you can defer your taxes without paying an additional interest penalty to the IRS.

What is the 3.8% Net Investment Income Tax (NIIT) and does structuring help?

The NIIT applies to investment income for high earners. By using a Structured Installment Sale to spread your gain over many years, you may keep your annual income below the thresholds ($200k single / $250k married), potentially exempting your payments from the extra 3.8% tax that you would have paid on a lump sum.