Section 453 - Capital Gain Deferred with an Installment Sale Carry Back Note
Section 453 of the Internal Revenue Code ("Installment Sale Code ") allows you to defer your capital gain income tax liabilities when you carry back a promissory note on the disposition (sale) of your property. This is often referred to as seller carry back financing or installment sale treatment.
Generally, you sell your property and carry back a promissory note to help the buyer finance the acquisition of your property. You are then able to defer the recognition of your capital gain income tax liabilities until principal payments are received by you over the term of the promissory note.
Depreciation recapture can not be deferred with an installment sale and would be recognized in the year in which the disposition (sale) occurred.
Other Tax-Deferral and Tax Exclusion Strategies
Charitable Remainder Trusts permit you to transfer your highly appreciated property or asset into a Charitable Remainder Trust (CRT) for the benefit of charities selected by you. The CRT provides you with an immediate income tax deduction for the "donation" of the property or asset into the CRT, allows you to immediately dispose of (sell) the property or asset without incurring any depreciation recapture or capital gain income tax liabilities, and then reinvest the net sales proceeds into investments providing better cash flow opportunities. There are different types of CRTs, so you should discuss your options with your legal, tax and financial advisors.
There was once a signifant amount of discussion regarding Private Annuity Trusts. However, the Internal Revenue Service (IRS) effectively eliminated the Private Annuity Trust (PAT) as a tax-deferral option in late 2006.
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