This can be a wonderful strategy when selling property or a business. We generally want to see our clients ‘spread out’ their tax bill over time, rather than pay all the tax up front, however, there are actually several advantages when using the installment method:
1. It provides a method of deferring taxes associated with gains from the sale of property.
2. A seller may structure an installment sale to defer payments and associated gains until a tax-advantaged year.
3. The installment method can be attractive to a buyer, because it provides a buyer with a full stepped-up basis in the purchased property in an amount equal to the agreed-upon purchase price, even though the buyer may have given only an installment note debt to the seller.
4. Thus, if the buyer buys depreciable property from a seller on the installment method, the buyer can take depreciation deductions based on the fully agreed-upon purchase price of the property, without having paid for the property beyond giving the seller an installment note debt.
Today's blog courtesy of Mark Kohler,