Increasing Profitability Using an Installment Sales Trust
Using an Installment Sales Trust (IST) you can:
- Defer paying taxes when you sell a property
- Invest the proceeds and,
- Maximize your profits
An Installment Sales Trust (IST) enables you to defer paying taxes on your gain when you sell a property and reinvest other tax deferral methods you can invest in any income producing asset and “sell high and buy low” by timing the market.
An IST is a business trust that allows you to use Section 453 of the US Internal Revenue Code to sell properties, business interests and other assets and delay paying taxes by establishing the trust. ISTs have a long track record of success and have withstood IRS scrutiny. Using this technique your asset is sold to the trust which in turn sells it to the intended buyer. An installment note is created for the amount of your gain and you receive payments over a period of 10 or more years. You only pay taxes on the gains when you receive them. The IST trustee will invest your funds as you direct.
In many cases the ability to defer paying your tax and invest the funds is significant. For example; if you paid $600,000 for a property and sold it for $1,000,000 you would have a $400,000 gain. Investing those funds and earning a modest 5% return annually you would earn another $200,000 over 10 years.
An Intallment Sales Trust (IST) needs to be created before your property is sold and you need to work with a 3rd party independent trustee. IRS rules require that the sale be an “arm’s length” transaction and that the trustee has relevant experience with this type of transaction.
We can make this simple. Our advisors will work with you to determine if your property or business qualifies for an IST, structure the transaction, and offer advice on assets to purchase.