Nation: Structured Sales Provide Alternative To 1031 Exchanges

A 1031 exchange is a way of deferring capital gains tax on investment property by 'exchanging' it for another investment property with the exchange going through the hands of a qualified intermediary and not your own hands). If that lake cabin doesn't qualify as an investment property under the IRS regulations or if your gains on an apartment building are more than your new property is worth, or if you don't want your money in real estate again, what can you do? "Structured sales are not for everyone but it's a tremendous strategy for people with highly appreciated properties" says Niel Friedman of Investment Property Exchange Services Inc. Patterned after structured settlements that are common in liability law, both are ways to break a large lump-sum payment into an annuity or installment payments over several years or a lifetime. The option has been around for a few years but it is just being introduced into the local market. Friedman says that a classic situation for a structured sale is one in which someone may have owned a lake property for 21 years but it doesn't qualify as an investment property under the 1031 exchange rules. The couple might sell the cabin and create annuities for themselves and their children. The result is to earn a return, spread out the tax burden and lock in payments to their children.