Sagemark Consulting
Sagemark Consulting Private Wealth Financial Partners
AN INSTALLMENT SALE CAN CREATE TAX ADVANTAGES:
is an affiliate of Sagemark Consulting …we help define your future!
THINGS TO CONSIDER
www.pwfpartners.com
Contact Details Duncan Eng 2105 S. Bascom Avenue Suite 300 Campbell, CA 95008 (O): 408.879.4217 (F): 408.559.1620 [email protected]
Installment sales are a useful tool in solving a number of problems for my most successful clients:
Business continuation Income tax deferral on the transfer of appreciated assets Estate tax management Gift tax management
What is an installment sale and why would anyone bother with it? An installment sale is a seller-financed deferred-payment sale. Properly structured, an installment sale allows a deferral of the taxable gain realized by the seller.
Edward C. Rusnak 3000 Executive Parkway Suite 400 P.O. Box 5154 San Ramon, CA 94583 (O): 925.659.0372 (F): 925.275.0999
Here’s an example of how an installment sale might work. Mother sells the family vacation home worth $1,000,000 (with a cost basis of $100,000) to her son in return for his promise to pay her the value of that home in installments which includes interest on the unpaid balance over a 10-year period. Mother and Son agree to an interest rate of 3 percent.
[email protected]
Son agrees to send monthly payments of $9,656 to his mother for 120 months. The monthly payments are each partly a return of Mother’s basis, partly payment of capital gains and partly interest. Jeff Gustafson 2105 S. Bascom Avenue Suite 300 Campbell, CA 95008 (O): 408.879.4224 (F): 408.559.1620 [email protected]
What are some of the advantages?
Simplicity—An installment sale is so commonplace that the law in this area is relatively settled and easily understood.
Pro-rate capital gains—As the numeric example above shows, the seller can put off recognition of capital gains (and taxes) to future years.
Estate tax savings—In cases where the asset being sold to a family member is appreciating more rapidly than the interest rate used in the installment note, the strategy can help save estate taxes.
Assure succession of a family business—An installment sale can help transfer a family business during lifetime—even if the buyer doesn’t have ready cash on hand.
Installment sales don’t fit every situation, however. Here are a few potential drawbacks:
The buyer may not be able to afford payments. If the buyer runs out of money before the sale is completed, the seller may not get full value for the asset.
The seller loses control of the property being sold. If the property is sold in an installment sale, the title to the property generally transfers at the time the note is signed.
Taxes are not avoided, they are just deferred. An installment sale is generally a tax deferral technique, not a tax savings strategy.
Do you know a person who has a closely held business or other illiquid asset that they are trying to sell to family or a third party? Is the prospective seller worried about taxes? If you or someone you know needs help in deciding whether an installment sale might be right for you, I’d be happy to visit.
AS ALWAYS, PLEASE FEEL FREE TO CALL TO DISCUSS THESE OR OTHER FINANCIAL SECURITY ISSUES OF CONCERN. Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
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Duncan Eng is a registered representative of Lincoln Financial Advisors Corp.
›
“Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Member SIPC.
›
“Investment advisory services offered through Lincoln Financial Advisors or Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor.”
›
Insurance offered through Lincoln affiliates and other fine companies.”
›
“The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients and is for informational purposes only. We do not offer legal or tax advice. Seek the advice of a tax advisor prior to making a tax-related insurance/investment transaction.” CRN# 201309-2084798
›
AN INSTALLMENT SALE CAN CREATE TAX ADVANTAGES:
is an affiliate of Sagemark Consulting …we help define your future!
THINGS TO CONSIDER
www.pwfpartners.com
Contact Details Duncan Eng 2105 S. Bascom Avenue Suite 300 Campbell, CA 95008 (O): 408.879.4217 (F): 408.559.1620 [email protected]
Installment sales are a useful tool in solving a number of problems for my most successful clients:
Business continuation Income tax deferral on the transfer of appreciated assets Estate tax management Gift tax management
What is an installment sale and why would anyone bother with it? An installment sale is a seller-financed deferred-payment sale. Properly structured, an installment sale allows a deferral of the taxable gain realized by the seller.
Edward C. Rusnak 3000 Executive Parkway Suite 400 P.O. Box 5154 San Ramon, CA 94583 (O): 925.659.0372 (F): 925.275.0999
Here’s an example of how an installment sale might work. Mother sells the family vacation home worth $1,000,000 (with a cost basis of $100,000) to her son in return for his promise to pay her the value of that home in installments which includes interest on the unpaid balance over a 10-year period. Mother and Son agree to an interest rate of 3 percent.
[email protected]
Son agrees to send monthly payments of $9,656 to his mother for 120 months. The monthly payments are each partly a return of Mother’s basis, partly payment of capital gains and partly interest. Jeff Gustafson 2105 S. Bascom Avenue Suite 300 Campbell, CA 95008 (O): 408.879.4224 (F): 408.559.1620 [email protected]
What are some of the advantages?
Simplicity—An installment sale is so commonplace that the law in this area is relatively settled and easily understood.
Pro-rate capital gains—As the numeric example above shows, the seller can put off recognition of capital gains (and taxes) to future years.
Estate tax savings—In cases where the asset being sold to a family member is appreciating more rapidly than the interest rate used in the installment note, the strategy can help save estate taxes.
Assure succession of a family business—An installment sale can help transfer a family business during lifetime—even if the buyer doesn’t have ready cash on hand.
Installment sales don’t fit every situation, however. Here are a few potential drawbacks:
The buyer may not be able to afford payments. If the buyer runs out of money before the sale is completed, the seller may not get full value for the asset.
The seller loses control of the property being sold. If the property is sold in an installment sale, the title to the property generally transfers at the time the note is signed.
Taxes are not avoided, they are just deferred. An installment sale is generally a tax deferral technique, not a tax savings strategy.
Do you know a person who has a closely held business or other illiquid asset that they are trying to sell to family or a third party? Is the prospective seller worried about taxes? If you or someone you know needs help in deciding whether an installment sale might be right for you, I’d be happy to visit.
AS ALWAYS, PLEASE FEEL FREE TO CALL TO DISCUSS THESE OR OTHER FINANCIAL SECURITY ISSUES OF CONCERN. Any discussion pertaining to taxes in this communication (including attachments) may be part of a promotion or marketing effort. As provided for in government regulations, advice (if any) related to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
›
Duncan Eng is a registered representative of Lincoln Financial Advisors Corp.
›
“Securities offered through Lincoln Financial Advisors Corp., a broker/dealer. Member SIPC.
›
“Investment advisory services offered through Lincoln Financial Advisors or Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor.”
›
Insurance offered through Lincoln affiliates and other fine companies.”
›
“The content of this material was provided to you by Lincoln Financial Advisors for its representatives and their clients and is for informational purposes only. We do not offer legal or tax advice. Seek the advice of a tax advisor prior to making a tax-related insurance/investment transaction.” CRN# 201309-2084798
›
