Some of you have asked me about “Structured Sales”.  These are unique vehicles to sell real estate and delay tax payments, and similar to a 1031, they allow a seller with a stream of income – where the seller chooses when to receive – and to schedule when taxes will be paid.

Well, I am not very familiar with them, but I have researched the matter for you and found a service provider and conducted an interview.  This person actually used to work for the commercial division of Prudential, Americana Group, REALTORS® some years ago.

Darren:  Hello Arlene, thank you for taking my call about Structured Sales.  I have received some questions on these and have some questions for you.  But first, aren’t you a Nevada real estate agent or were?

Arlene: Thank you Darren, yes, I have been working in the commercial real estate market here in Las Vegas, Nevada since August 1989.  I used to work for you at NAI! Do you still wear bow ties?

Darren:  Bow ties?  Oh my, you do have a memory, no thank goodness, only to gala events.  So, let’s get started.  Let’s talk about Guaranteed Structured Sales and what changes you have seen in the real estate market that lead you to this career path?

Arlene:  The commercial market has changed over the last 5 years…..we have millions of square feet of industrial, office and retail properties today… which is very healthy for the Las Vegas valley….what we do not have is fully leased investments with a desirable cap rate …..because of the economy quite a few buildings are vacant and not producing the income of which they are capable.

Darren: How does that affect buyers and sellers?

Arlene:  What an attractive question.  Sellers generally will not sell their property unless they can find a suitable property to buy (or replace) in exchange to defer their taxes until a later date.  This is known as a 1031 exchange.  Since today’s market is volatile it is very hard to find the replacement property.  There is, however, an option other than the 1031 exchange.  This is known as the Structured Sale.

Darren:  How does it work?

Arlene:  The sellers sell their property to a third party, just like any sale, however, instead of declaring they are going to do a 1031 exchange the seller places in the counter that they will be purchasing an annuity with the monies from the sale.  Similar to a 1031 Exchange, the seller does not take actual control or constructive receipt of the proceeds.  Rather, the proceeds are placed with an A+ rated insurance company and simultaneously the seller designs a receipt of payment plan that specifically meets the seller’s needs and desires. 

Darren: Seems simple enough?

Arlene:  Well, it is more complicated than that, with some technical points, but I want to explain it in a manner that everyone can understand.  I have a handout titled Defer Taxes via a Structured Sale Real Estate [Real Estate, Business or other Real Property] that you can share with your sales staff I will fax it to you after this call. 

Darren:  OK, so it is a tax deferred way of selling which is an alternative to the 1031 exchange with which we are all so familiar with?

Arlene:  Another great comment.  Correct….both defer taxes…..the difference is you have the option to stipulate how you would like your  money paid back….there are no properties to identify or negotiate no risk of paying the taxes due to the inability to close the other property.  This is an ideal vehicle for sellers today.

Darren: OK, first thing that comes to mind. I am selling a property; I want some cash proceeds and also want to re-invest some proceeds back into like kind real property?  Possible?

Arlene:  You should interview for a living.  Good question and Yes, but the monies have to be identified in the contract as to where and how much you are going to spend on each prior to the close of escrow. 

Darren:  OK, follow up on the 1031 subject; can I use this as a fallback to a failed 1031 exchange?

Arlene:  NO/YES….you have labeled a tricky scenario…..generally to be qualified as tax deferred you would like there to be what they call a Private Letter Ruling commonly known as a “PLR” from the IRS……

Darren:  Sounds complicated.

Arlene:  It’s not that bad, a PLR basically states that the IRS approves this….we DO NOT have this PLR yet…which specifically states, if your exchange fails, you can use a Structured Sale as a back up.  It is approved to use a Structured Sale from the outset of a contract. ..

Darren:  Final question, is this valid anywhere in the US? 

Arlene: Anywhere.

Darren:  Thank you Arlene, can I give you a plug in case on my valued sales representatives has a question?

Arlene:  Have them call me direct!  I am at their service to explain this process in greater detail if needed…I can be reached at 702-990-5654.

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