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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
February 6, 2014
Until the higher capital gains tax rates and the net investment income tax took effect, S.Crow Collateral Corp.’s "collateralized installment sale" or "C453" sale prices tended to be less than $5 million.
That made it easy to achieve tax deferral for our sellers, because Section 453 of the Internal Revenue Code allows interest-free tax deferral for under-$5 million installment sales. Section 453A, however, requires the seller in an over-$5 million installment sale to pay interest to the government on the deferred tax liability.
Now that our transactions tend to be greater (often much greater) than $5 million, we use a unique C453 structure which enables our sellers to achieve tax deferral under Section 453 without concern about the $5 million provision in Section 453A or the requirement of paying interest to the IRS.
Further, regardless of the deal size, our seller remains eligible to receive, in cash at closing, a monetization loan from a third-party lender in an amount that is typically equal to 95% of what the ultimate buyer pays for the asset. As with the monetization loans which are coupled with smaller-size C453 deals, our seller cannot be compelled to pay more to repay the loan than is received by our seller from S.Crow Collateral Corp.’s payments on the installment contract.
Oh, and it’s fine with us if your deal is less than $5 million. We’re still doing those, too.
We’re here. You’re there. Life is better when you come over here.—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.