1031 Exchange Or Tax Deferred Cash Out (TDCO)? I have a client who currently has his apartment complex under-contract with a buyer. We've been focusing on finding a new property to satisfy the 1031 exchange. However, he recently came across some information on a Tax Deferred Cash Out strategy as a way to defer capital gains tax. Anyone familiar with this method or can elaborate on the pros/cons of going that direction over a traditional 1031 exchange? This is the webinar that caught his attention: https://vimeo.com/589486204

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With the various parties and transactions that are going to take place, the TDCO option seems expensive. I bet it could cost you 7-10% of the selling price when all is said and done.

This is actually a great topic to discuss, particularly if the particular sale can't qualify for 1031 treatment or perhaps you're wanting to spread the gain from a large capital gain over several years to avoid the NIIT, provided that you're not already making that kind of money to begin with.

I reference this article from 2019 in Forbes, as it discusses both Monetized Installment Sales and Structured Installment Sales:

Clever Techniques To Defer Capital Gains

Provided you don't need (or want) access to the entire sales price up front, I prefer the relative simplicity of the Structured Installment Sale.

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In principle, it is a more straightforward transaction. You enter into an installment sale with your buyer and then your buyer pays a financial institution of some sort to assume the obligation to perform on the note.

The upside of using a strong institutional intermediary is that you can probably have a good deal of confidence that they will not screw up the execution, which is probably the biggest tax risk in this sort of plan.

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My biggest concern with the installment sale in general is the default risk. Once I sell something, I damn sure don't want to see it again. The SIS seems to minimize that risk by putting a stout intermediary in the equation as a surety.

I would like to hear other ideas on this, and would appreciate seeing them here in this thread. Even with current capital gains rates being relatively low, if you hit a grand slam home run on a major property sale that big $$$$ check you'll have to write to the IRS really gets your attention.

Replied on the B&I board, but the IRS issued guidance in 2021 on why these things don't work and don't qualify for installment sale treatment.

OldArmyBrent said:

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Replied on the B&I board, but the IRS issued guidance in 2021 on why these things don't work and don't qualify for installment sale treatment.

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Thanks for posting that IRS Chief Counsels Advice document in that thread.

I agree, IRS won't permit Monetized Installment Sales, which is what that document addresses.

But, just to add a point of clarity to the thread -- The Structured Installment Sale is still very much alive and can be a great tool when you anticipate having a large capital gain.

In fact, as of this month, MetLife is offering these in 49 of the 50 states. New York is the outlier.

MetLife Launches Structured Installment Sale Solution in 49 States
[url=https://www.businesswire.com/news/home/20220309005728/en/MetLife-Launches-Structured-Installment-Sale-Solution-in-49-States][/url]
I have no involvement with either MetLife nor with any broker who offers these. I am seriously looking at them on some future transactions, however. It seems like they offer a good way to reduce NIIT, reduce capital gains rates or defer capital gains taxes, while adding some surety to an installment sale.