Installment Sales

Generally, an Installment Sale offers an opportunity for an eligible Seller to defer recognition of some or all of the gain on a disposition of qualified property.  For a sale to constitute an Installment Sale, it must be a sale of qualified property where the Seller receives at least one payment after the tax year of the sale.^1,2 Each installment payment received by the Seller consists of the following three components: (a) nontaxable recovery of the investment (b) taxable gain, and (c) interest.³

A traditional Installment Sale arrangement has the Seller dependant upon the financial solvency of the Buyer for future periodic payments that the Buyer owes to the Seller.  Since the Installment Sale permits the Seller to take payment in the form of a periodic payment, the Seller could potentially be at risk regarding the credit worthiness of the Buyer.  In order to mitigate this risk, the Seller can agree with the Buyer that the periodic payments will be funded with an annuity from a large, highly rated life insurer like Allstate Life Insurance Company, which will help provide assurance to the Seller that he or she will receive future periodic payments.

Why Installment:

♦ Defers recognition of some or all of the gain

♦ Guaranteed rate of return

Why Structure:

♦ Concern over fulfilling payment obligation

♦ Concerns over investment risk

♦ Long term financial security

¹ Real or personal property sold by a dealer or a person who regularly sells property on the installment plan and property included in inventory do not qualify for the installment sale rules.  Marketable securities are not eligible for installment sale treatment.  Other restrictions apply.   Please consult your tax advisor before entering into an installment sale agreement.

² Special rules apply to non-dealers.  Please consult with your tax advisor to determine whether those rules could impact your arrangement.

³ Please note that information provided on this page is not intended as legal or tax advice.  Please consult with your attorney or tax advisor on whether or not an installment sale is right for you, and how to best structure such sale.