Collateralized Installment Sales
Collateralized installment sales is a solution for the disposition of property where the seller reinvests the sales proceeds tax deferred into a mortgage pool with an independent third party. This alternative stategy is implemented without the time constrictions and other limitations of a § 1031 exchange although, it works beautifully with a 1031 exchange, either as a back-up in the event the exchange fails or to defer tax on any cash remainder (the "boot").
Collateralized installment sales provide an opportunity both for tax savings and for greater long-term return from the investment of the gross proceeds from a property's disposition. An owner of appreciated property i.e, commercial real estate, can dispose of that asset, defer the capital gains tax indefinitely and receive a return on the gross, pre-tax proceeds. The seller pays the tax later with depreciated dollars, on a schedule that suits the seller and without interest cost for having postponed the payment.
What's interesting is that this can be accomplished without relying on the credit, income or investment success of the installment buyer; without retaining a lien on the property that is sold; without the risk of having to foreclose in the event of default; and without preventing the buyer from obtaining financing.