Here is Your 1031 Exchange Alternative that Defers Capital Gains Tax and Delivers Cash at Closing.

A Tax-Deferred Installment Sale is a way of structuring the deferral of Capital Gains Tax of a highly appreciated agricultural asset, such as a farm, farmland, vineyard, grazing land, etc. that can be a lower-risk alternative to a 1031 exchange because it does not involve IRS deadlines for replacement property.

Advantages of a Tax Deferred Installment Sale Compared to a 1031 Exchange.

No exchange deadlines — you can take your time finding replacement property if that is your objective. This means you won’t be “boxed in” as deadlines approach, and you will not be tempted to overpay for replacement property, or settle for a sub-standard property, just to preserve your 1031 exchange tax deferral.
No “like kind property requirements.” You can use the proceeds from a tax-deferred cash out to invest in other real estate OR any other type of asset.
No “boot” issues.

The Tax-Deferred Cash Out Advantage

The 1031 tax deferred real estate exchange is an excellent vehicle for building real estate wealth, but it comes with some risks. When exchanges go as planned, real estate exchangers are happy. When a 1031 exchange fails to complete, no one is happy, except possibly the IRS, which will collect capital gains tax revenue from the would-be exchanger.

Fortunately, there is a 1031 exchange alternative – known as a Tax-Deferred Installment Sale – that can serve as an option, instead of taking the risk that your 1031 exchange fails.

Reduce Risks with a 1031 Exchange Alternative

Most would-be exchangers are unaware that they even had an option to a 1031 exchange. Exchanges usually fail due to the seller’s inability to find a suitable replacement property within the required 45-day identification period, or they are unable (or unwilling) to close on an identified property within the 180-day exchange period.

When a 1031 exchange falls through, it results in a taxable sale, and the seller ends up paying the capital gains tax when it could have been avoided by implementing a little-known, but highly effective, 1031 exchange alternative. Real estate owners can avoid the risk of a failed exchange and still defer their capital gains tax by using an alternative tax strategy.

What if Your 1031 Exchange Doesn’t Close?

Regardless of the reason a tax-deferred exchange does not close, if your 1031 exchange doesn’t work out, then instead of deferring capital gains tax, you must pay. This is an ever-present risk — that your tax-deferred exchange fails to close, so you do not eliminate capital gains tax as you had planned.

The odds that a 1031 exchange will fail to close can be uncomfortably high, representing a risk to real estate sellers who wish to defer capital gains tax. While the percentage of exchanges that fail may not seem high, it’s worth noting that tight 1031 exchange deadlines often encourage exchangers to overpay for their replacement property, or exchange into less than desirable property – just to complete the exchange and defer the tax. For these reasons it’s worth considering a 1031 alternative that does not impose rigid deadlines.

Defer Capital Gains Tax and Sell your Property for Cash at Closing:

When you anticipate that a 1031 exchange may not be successful, it may be better to skip that option and instead undertake the sale of the property via a Tax-Deferred Install Sale. This will have no impact on any of the counterparties to the transaction, but it will preserve your ability to defer capital gains tax. It also will leave you with cash equivalent to approximately 93.5% of your net sales proceeds. This is cash that you can then reinvest any way you wish, in other real estate, other types of assets.

Even if your goal is to reinvest in other real estate, when a Tax-Deferred Installment Sale is used as a 1031 exchange alternative, you conclude your sale transaction by receiving cash at closing instead of a replacement property. Then you may use the cash to shop for another property, if you wish, without any deadlines.

Contact Us to Explore Your 1031 Exchange Alternative.

Please contact us if you want to explore eliminating 1031 exchange risks by utilizing a Tax-Deferred Installment Sale as a 1031 alternative. How to Defer Capital Gains Tax for 30 Years and Simultaneously Obtain Cash Equal to 93.5% of Your Net Sales Proceeds

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415 Advisors is not an accounting or law firm.

No information provided on this website is intended as individual tax advice.

Consult with a qualified tax adviser before acting on any of the information provided on this site.

Notice: Internal Revenue Service regulations provide a taxpayer may rely only on formal written advice to comply with IRS regulations. We advise you that any discussion of Federal tax issues contained on this website is not intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties or to promote, market, or recommend to another party any tax-related matters that may be imposed under the Internal Revenue Code as it does not meet those requirements of formal written advice. All interested parties are advised to seek qualified legal counsel to determine whether this transaction structure is suitable for their individual situation and risk tolerance. We can provide referrals to CPAs and tax attorneys who are experienced in this specific area.