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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
May 13, 2013
Under IRS Publication 541, gain that would be taxed as ordinary income from depreciation recapture—that is, gain from accelerated depreciation—"must be reported in the year of sale", even on an installment sale. Nevertheless, under Section 1250 for depreciable real estate, the amount of accelerated depreciation recapture that must be reported in the year of sale is limited by the total amount of the gain (that is, the total amount by which the amount realized on the sale exceeds the seller’s adjusted basis in the property). To say it another way, if there is no overall gain, there is no reportable depreciation recapture, regardless whether the sale is a cash sale or an installment sale.
IRS Form 4797, for reporting sales of business property, makes that clear.
"Well, duh," you might say, "of course there’s no depreciation recapture if there’s no overall gain on the sale, but why would I want to sell my appreciated asset for a price equal to my tax basis? Why would I do that, either in a cash sale or in an installment sale?"
To that I answer that you probably wouldn’t want to do that, unless there were some other way in which you could achieve the results you want to achieve—and there is, but only in tandem with a collateralized installment sale ("C453") transaction with S.Crow Collateral Corp.
I’m not going to tell you here and now how it’s done, but it is indeed possible to defer the tax on recapture of depreciation, both accelerated and straight-line. It will be time enough to tell you and your tax adviser, when you and we consider doing a transaction together.--tan 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.