The owner of two office buildings with a combined value of $14.9 million wanted to sell but faced a major problem. After costs of sale and paying the $12 million mortgage debt owed, he would not have enough to pay at close of escrow all the total taxes due, totaling $4.7 million. Consequently, he would be forced to pull out of pocket more than $2.2 million to pay off the balance owed to the IRS and state. Included in this problem was the Debt Over Basis tax issue that alone triggered $1.6 million of the total amount of taxes owed.
By coupling a monetization loan with an Installment sale, the two buildings are sold for $14.9 million, sale costs are paid, the $12 million mortgage debt is paid off without triggering the taxes due for Debt Over Basis and the $4.7 million in taxes are deferred for decades. In addition, the seller receives at close of escrow more than $1.5 million tax-free to reinvest however he chooses.