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The Latest Installment

#210: Business Reasons to Consider an Installment Sale instead of a Tax-deferred Exchange

August 31, 2021

            An installment sale of your business or investment real estate may substantially improve your post-closing cash flow, as compared with a cash sale as the first leg of a 1031 tax-deferred exchange.  Here are some reasons why.


            Reason #1:  Unnecessary debt-service cost:  In a 1031 exchange, the exchangor cannot have less debt on the replacement property than the exchangor had on the relinquished property (or the exchangor will be taxed on the difference).  That means that the exchangor will incur out-of-pocket debt-service cost over future years as the price of using a 1031 exchange, and the interest expense for that debt will be an on-going expense that will cut into the income from a replacement property.  After closing an installment sale, however, the seller is free to purchase a replacement property debt-free.


            Reason #2:  Over-pay for replacement property:  Section 1031 imposes strict time limits on finding and acquiring replacement property.  Because of those time limits, an exchangor is thrown into competition with other exchangors to find and buy suitable property quickly.  That means that the exchangor will almost certainly over-pay for the replacement property, as exchangors generally do.  Many studies have so found[1], and it’s what one would expect if the exchangor must hurry to purchase while the seller can take whatever time the seller wishes.  How effective was tax deferral on the sale of the relinquished property if the exchangor overpays by 10% or thereabouts to buy a replacement property? 


            Reason #3:...


#207: S.Crow Collateral Corp. Is a Dealer-Principal Which Buys and Re-Sells Capital Assets for Its Own Account

August 03, 2021


            It’s not unusual for adolescents to experience role confusion, as they can be unsure of who they are and where they fit.  They may feel confused about their place in life.  (For more about that, see, among others, https://www.verywellmind.com/identity-versus-confusion-2795735 .)


            S.Crow Collateral Corp. is neither an adolescent nor burdened by role confusion.  We know who we are.  We know what we do.  We know our place in life.


            What we do—our place in life—is to buy and sell capital assets for our own account, for resale in pursuit of our own profit.  Our chosen role is to have our sellers finance us (“carry the paper”) to buy from them on installment contracts, after which we re-sell for cash which we then invest in pursuit of long-term profit.  So, we borrow money at our own risk and liability, and we invest at our own risk and for our own profit, in which our sellers do not share.




#206: S.Crow Collateral Corp. Receives Equitable Title when It Purchases an Asset with an Installment Sale

July 31, 2021

            As a dealer in capital assets, when S.Crow Collateral Corp. enters into an installment agreement with a seller for an installment sale, S.Crow Collateral Corp. contracts for legal title but does not itself take legal title. Instead, as provided in the installment agreement, the installment seller conveys or transfers legal title, on S.Crow Collateral Corp.’s behalf, to the person or entity who or which purchases the asset from S.Crow Collateral Corp.



            So, if it’s real estate, the deed passes directly from S.Crow Collateral Corp.’s installment seller to S.Crow Collateral Corp.’s buyer.  If it’s an asset other than real estate; the assignment or other instrument of transfer is signed by S.Crow Collateral Corp.’s seller and is delivered, again on S.Crow Collateral Corp.’s behalf, to whoever buys the asset from S.Crow Collateral Corp.


            Indeed, that process is typical of dealers generally, in regard to assets for which the state has a title system.  When a car dealer receives a used car in trade for a new car, the car dealer is not usually issued a title for the used car.  When a car dealer receives a new car from the manufacturer, the car dealer is not usually issued a title for the new car.  In regard to assets for which the state has a title system, the title instrument is evidence of ownership, but it is not ownership itself.  Ownership arises from having lawfully purchased the rights of ownership.  A title instrument is evidence to that effect, but if the person who has the title instrument did not lawfully purchase the rights of ownership, the title instrument...


Stanley Crow, our Editor

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.

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As a principal only, S.Crow Collateral Corp. does not act in the capacity of a broker, sales representative, investment advisor, or tax or legal advisor; does not sell or recommend any security; and does not accept any transaction fee or payment for transaction services. No part of The Latest Installment is intended to be, or be received as, tax, legal or investment advice.

Circumstances may affect tax and legal outcomes. Each transaction is different and unique to each participant. Neither S.Crow Collateral Corp. nor any of its officers or employees may or does provide tax, legal or investment advice. Nothing in The Latest Installment is intended to be, or may be taken to be, tax, legal or investment advice. Interested parties should consult their legal, tax and investment advisors before participating in any transaction.