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176. Does an Installment Sale Defer the Tax on Recapture of Accelerated Depreciation? No. Can the Tax on Recapture of Accelerated Depreciation Nevertheless Be Deferred When an Installment Sale Occurs? Yes.
162. Transfer a Family Business to the Next Generation During the Parent's Lifetime, Retain an Asset for Income, Give the Transferee a Stepped-up Basis, Defer the Gain on Sale, Support the Parent with Deductible Rent, and Finance the Transaction, Too
July 7, 2011
While taxpayers try to find a way to shelter interest income, or at least to convert it to capital gain, the Internal Revenue Service is on the lookout to try to stop taxpayers from succeeding in their efforts.
So, let me share with you a way in which both objectives can be accomplished, simultaneously, in one particular transaction.
Here’s the deal: If you: (1) sell a capital asset to S.Crow Collateral Corp. on an installment contract; (2) simultaneously borrow money from a lender we introduce to you; and (3) invest the loan proceeds in appreciating assets; you can accomplish these objectives: (a) defer the tax on the gain on sale for 30 years or even more; (b) avoid all net tax cost on the installment interest (because of a matching interest-expense deduction for the loan interest); and (c) be taxed at only capital-gains rates on the capital gain from the new investment.
That was always true with a collateralized installment sale, but the problem, until very recently, was obtaining a loan to match the installment contract—especially when credit has been tight.
Now, though, any installment seller to S.Crow Collateral Corp. can obtain a matching loan, because the installment contract itself is the only qualification for the loan.
This may be one of the most tax-efficient transactions available today, and it’s available to everyone with a capital asset to sell.—Stan Crow
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The Latest Installment addresses situations, questions and issues which are brought to us in the course of the consideration, negotiation or execution of transactions. We don't use the real names of parties to transactions, and we may edit the statement of the question to try to tell the story better. Please feel free to comment, or to take issue, or to raise your own question or situation. If you do the latter, please do not relate any confidential information.
The Latest Installment blog is edited by Stanley D. Crow, who is president of S.Crow Collateral Corp.