Monetized Installment Sale - viable alternative to 1031?

Question

Does anyone know how difficult it is to do a monetized installment sale as an alternative to 1031 for deferring capital gains taxes? My CPA and real estate agent don’t know anything about it, and I don’t know how get started even if I wanted to do something like this. I’ve only read some information online describing how it works and it seems rather confusing. But if it does truly achieve a 30 year deferral then it’s something that I’d prefer doing over a 1031.

Bill Exeter · Answer

Hi @Debbie Cost,

The California Franchise Tax Board issued Notice 2019-05 stating installment sale "arrangements" designed to defer taxes when a 1031 Exchange fails will not defer taxes. Here is a quote right out of the Notice:

"FTB is aware of arrangements in which a taxpayer or QI attempts to convert proceeds from a failed like-kind exchange, or the unreinvested portion of proceeds from a partial like-kind exchange, into an installment payment structure such as an installment note or similar arrangement in which payments are to be paid out over two or more years (the "Transaction"). These arrangements do not allow for a deferral of gain recognition under Internal Revenue Code ("IRC") sections 453 and 1031 since, among other reasons, these sections and the federal doctrine of constructive receipt do not support such a deferral of gain recognition."

You need to be very careful with these types of arrangements, especially if you are a California resident.

Natalie Kolodij · Answer

You should get a CPA who specializes in REI

Terry Ward · Answer

I just hired a well respected tax attorney /CPA that investigated these monetized installment. He said do not get involved with these because of high risk. IRS currently subpoenaed Crow for clients names and they are in litigation now. IRS writing opinion letter that it’s tax avoidance, not tax deferred. These are salesmen feeding you inaccurate information. Very dangerous. Pay the capital gains and be done or you’ll be looking over your shoulder the rest of your life! Not worth it. Read Forbes articles by Peter Reilly. PS. Do you really think the IRS is going to let so many Americans off the hook and not pay capital gains tax???? It’s laughable.
Don’t do it!!

Daniel Dietz · Answer

I have *heard* about them, but they are  hard to understand, at least to me :-).

Could one of the people who *do* understand then give a *brief* layman's explanation of how they work or are different from a 1031 (which I *am* familiar with.

Thanks, Dan Dietz

Matt Ward · Answer

@Debbie Cost not difficult to execute for a seasoned tax pro.  Curious, what circumstances lead you to prefer this over a 1031?

Monetized Installment Sale - viable alternative to 1031?

Monetized Installment Sale - viable alternative to 1031?

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