The Latest Installment

            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:...

            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.

         ...

            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...