(866) 867-8633

Reef Point, LLC

Deferring Recoginition of Capital Gains

Tax Strategy

Your 2026 Exit Plan The Tax-Smart Strategy Every Seller Should Know

· ·

Why January 2026 Is the Perfect Time to Start Planning Your Exit

The beginning of a new year is always a prime moment to rethink goals and set yourself up for long-term success. But January 2026 is especially important, because it marks the first year after the Tax Cuts and Jobs Act (TCJA) sunset.

IRS overview of TCJA changes
Kiplinger – Consumer explanation of the 2025 tax sunset:

This means the tax landscape has already changed. If you’re planning to sell a business, real estate, or another highly appreciated asset in 2026 or 2027, understanding this new environment  and building a structured exit strategy now can significantly impact how much of your equity you keep working on your behalf.

 The 2025 Tax Sunset And What It Means for Your 2026 Sale

As of January 1, 2026, several major tax provisions officially reverted back to pre-2017 levels. This creates new challenges and opportunities for sellers.

Higher Capital Gains Taxes

Because many of the TCJA reductions expired, you may now see:

  • Higher top capital gains tax brackets
  • Larger overall tax exposure for high-income sellers

Combined rates (including NIIT) that may be 5–10% higher depending on your income

Lower Estate & Gift Tax Exemptions

In 2026, the exemption dropped from roughly $13M per person to about $6–7M per person (adjusted for inflation). This affects:

  • Business succession
  • Gifting strategies
  • Wealth transfer planning
  • How sale proceeds impact your taxable estate

Potential Increases in Ordinary Income Rates

While the focus is often on capital gains, higher ordinary income rates may now impact:

  • Installment sale income
  • DST income streams
  • Retirement planning
  • Required minimum distributions

Why Planning in Early 2026 Is Essential

You are now operating in a new tax era and selling without a structured plan could mean losing a significant portion of your equity.

Here’s why early planning matters:

1. You can still shape your 2026 strategy before entering negotiations. The earlier you prepare, the more flexibility you have to:

  • Structure the deal
  • Evaluate timing
  • Implement tax-aware strategies before a buyer is involved

2. DSTs cannot be added after the sale. Because a Deferred Sales Trust must be established before the sale closes, early planning ensures:

  • Proper coordination with your CPA and attorney
  • Full compliance
  • Enough lead time to customize your repayment structure and investment plan

3. You avoid rushed, last-minute decisions. Many sellers begin planning after they receive an offer, which is often too late. Starting now helps you:

  • Prepare documentation
  • Understand tax exposure
  • Make confident investment decisions
  • Maximize deferral benefits

4. You preserve more equity in the new tax environment. Higher taxes mean early planning in 2026 is now more valuable than ever.

What Is a Deferred Sales Trust (DST)?

A Deferred Sales Trust is a legal tax-deferral strategy that allows you to sell a highly appreciated asset while deferring capital gains tax through the installment sale method under IRC §453.

How a DST works:

  1. You transfer your asset to a trust before closing.
  2. The trust sells the asset to the final buyer.
  3. You receive repayments over time instead of one taxable lump sum.
  4. You defer capital gains tax, preserve equity, and your sales proceeds grow more capital.

It’s one of the most effective ways to control tax exposure after this year’s TCJA sunset.

The Benefits of a Deferred Sales Trust

Defer Capital Gains Tax

Rather than a large upfront tax bill, keep more of your sales proceeds working for you.

Preserve More Equity

Earn interest payments on the pre-tax sales proceeds.

Flexible Investments within the Trust

Your promissory note can be secured by real estate, index portfolios, lending, or diversified strategies.

Customized Income

Negotiate predictable payments for retirement or long-term cash flow.

Estate Planning Advantages

Reduce estate tax impact and align wealth transfer goals.

Business Owners Planning to Sell in 2026

Business owners often face the largest taxable events.

A DST allows them to:

  • Defer significant capital gains
  • Transition out of ownership on their terms
  • Unlock liquidity without losing equity
  • Have their pre-tax sale proceeds reinvested for retirement
  • Offset the impact of higher 2026 tax rates

Business sales do not qualify for 1031 exchanges making the DST one of the only flexible tax-deferral tools available.

Real Estate Investors with Highly Appreciated Properties

Many investors are hesitant to sell because of:

  • Low basis
  • Large gains
  • Depreciation recapture
  • Limited 1031 exchange options

A DST gives real estate sellers the ability to:

  • Defer capital gains without a 1031
  • Have their promissory note secured by real estate or liquid portfolios
  • Exit property management
  • Reduce concentration risk
  • Preserve more equity in the 2026 tax environment

Retiring Professionals with Private Holdings

For professionals near retirement, the DST helps them:

  • Defer capital gains when liquidating appreciated stock
  • Avoid triggering large taxable events in a single year
  • Have your promissory note secured by diversified, income-rich investments
  • Reduce tax exposure after the TCJA sunset
  • Maintain liquidity while reducing market risk

This is especially powerful for executives, founders, and long-term investors.

Anyone Seeking to Reduce Immediate Tax Exposure and Preserve Wealth

If you have a large taxable gain, generally $500,000or more, a DST is often one of the most effective ways to:

  • Reduce your 2026 tax liability
  • Increase capital
  • Improve retirement income planning
  • Delay tax exposure over many years
  • Achieve long-term wealth preservation

Your 2026 Exit Plan: How to Get Started Now

1. Schedule a DST Strategy Session with Reef Point.
We’ll review your upcoming sale, valuation, and tax exposure.

2. Coordinate with Your CPA, Attorney & Financial Advisor
Your advisors help integrate the DST into your overall financial plan.

3. Establish the DST Before Entering a Binding Sale Agreement
Early setup ensures eligibility and a smooth closing.

4. Close the Sale, Then the Trust Invests the Pre-Tax Sales Proceeds
Your proceeds move into the trust, allowing strategic, diversified investment.

The TCJA sunset has reshaped the tax landscape. A Deferred Sales Trust allows you to navigate this new environment with confidence and significantly more flexibility.

With a DST, you can:

  • Defer capital gains tax
  • Preserve more equity in a higher-tax year
  • Increase investment power
  • Negotiate the timeline and value of the repayments you’ll receive
  • Strengthen your long-term wealth and retirement strategy

Ready to Build Your 2026 Exit Plan?  Reef Point’s expert team is here to help you explore whether a Deferred Sales Trust is the right solution for you.

Schedule your complimentary DST consultation today.

Recommended Links:

Case Study- Business Exit Strategy

Scale Your Business with the Big Beautiful Bill – Exit Smart with a Deferred Sales Trust

· ·

Every business owner and real estate investor faces two major financial stages:

  1. Growing and scaling your business to maximize income and valuation.
  2. Exiting and selling while protecting as much of your hard-earned wealth as possible.

The “Big, Beautiful Bill” (the Tax Cuts and Jobs Act) created powerful tax provisions that help with the first stage accelerating growth and reducing taxable income. But when it comes time to sell, that’s where the Deferred Sales Trust (DST) comes into play allowing you to defer capital gains taxes, preserve wealth, and structure a tax-efficient business exit strategy so your wealth works for you, not the IRS.

Together, they create a strategy that lets you scale your business, optimize your EBITDA, and then exit with more of your wealth intact.

Stage 1: Scale Your Business with the Big, Beautiful Bill

The “Big, Beautiful Bill” introduced and extended tax provisions that continue to give business owners and real estate investors key growth advantages. Three in particular stand out:

Depreciation Advantage

Depreciation – With 100% bonus depreciation, you can write off major purchases like equipment, vehicles, or property improvements immediately rather than over many years. For real estate investors, accelerated depreciation can offset ordinary income and significantly reduce tax liability.

IRS Publication 946 – How to Depreciate Property

Qualified Business Income Deductions

Deductions – The qualified business income deduction was raised from 20% to 23%, keeping more of your income in your pocket. This extra margin can be reinvested into marketing, employees, or growth initiatives that drive top-line revenue.

Maximizing Write-Offs

Write-offs – From immediate expensing to maximizing retirement contributions (401(k), HSA, SEP plans), the bill strengthened the ability to reduce taxable income through legitimate business expenses and tax-advantaged accounts.

When combined, these provisions allow you to minimize taxable income while still reporting stronger top-line revenue, the number future buyers pay the most attention to when valuing your business. By maximizing revenue growth while reducing taxes, you also increase EBITDA, the metric most buyers use to measure operating performance.

Stage 2: Prepare for Exit and the “Other Big Bill”

After years of growth, deductions, and reinvestment, many business owners reach a point where their EBITDA and revenue make it attractive to sell. The problem? At the closing table, the capital gains taxes.

Selling a business or property can trigger a massive tax liability, often 20–30% or more of your gains. For owners who spent years carefully reducing their tax burden through depreciation and write-offs, this sudden tax hit can feel like all that planning was undone.

That’s why proactive capital gains tax planning is essential before you sell.

Stage 3: Use the Deferred Sales Trust to Defer Capital Gains

This is where the Deferred Sales Trust (DST) changes the game. Rather than paying capital gains taxes all at once, the DST allows you to defer those taxes by structuring the sale under IRC 453 (the installment method).

With a DST, you exchange the sales proceeds for a secured installment note, and the trust invests those proceeds based on your goals. 

In other words, the Big, Beautiful Bill helps you scale into the sale, and the DST helps you protect your wealth once you sell.

Why This Matters for Business Owners and Investors

When you put both together, you create a comprehensive tax plan that works throughout the entire life cycle of your business. During the growth phase, you can take advantage of depreciation, deductions, and write-offs to lower your taxable income while reinvesting those savings back into your business. This approach not only helps you keep more of what you earn but also strengthens your top-line revenue and EBITDA, the key metrics that drive a higher valuation when it comes time to sell.

At the point of exit, the Deferred Sales Trust becomes the next essential tool. Rather than paying a large lump sum in capital gains taxes, the DST allows you to defer those taxes, keep more of your wealth invested, and structure a flexible income plan that aligns with your financial goals.

By leveraging both stages, the tax-saving provisions of the “Big, Beautiful Bill” while you grow and the wealth-preserving power of the DST when you sell you can maximize what you take home today, present the strongest possible numbers to buyers, and still protect and preserve more of your wealth for the future.

If you’re scaling your business now and planning an exit in the future, Reef Point LLC can help you align both strategies. Contact us today to learn how a DST can help you keep more when it’s time to sell.

Plan Your Tax-Smart Exit with Reef Point

If you’re scaling your business now and planning an exit in the future, Reef Point LLC can help you align both strategies. Our team specializes in Deferred Sales Trust implementation, helping business owners and investors reduce capital gains exposure, diversify reinvestment, and preserve long-term wealth.

Recommended Links:

Case Study- Business Exit Strategy

How the Big Beautiful Bill Plus a Deferred Sales Trust = Maximum Tax Savings

· ·

When the Trump Administration’s “Big, Beautiful Bill” was signed into law, it created major advantages for small businesses and real estate investors. From increased deductions to immediate expensing, the tax landscape shifted in ways that allowed investors and business owners to reinvest more quickly and grow more confidently.

One of the most notable benefits was the increase in the small business tax deduction, which rose from 20% to 23%. This change meant business owners could retain more of their profits, providing additional capital to reinvest in growth, expand operations, or strengthen financial reserves.

Another powerful provision was the return of 100% immediate expensing. Instead of spreading deductions for qualifying purchases over several years, businesses could now deduct those costs all at once. For companies who needed to invest in equipment, vehicles, or technology, this accelerated deduction created a strong incentive to upgrade and modernize without waiting for long-term tax benefits.

Clipboard with 'One Big Beautiful Bill' over an american flag background

Real estate investors can experience a significant advantage with accelerated depreciation. With 100% bonus depreciation, they were able to write off property-related expenses much faster, making real estate an even more compelling wealth building strategy. Whether held inside a business or a direct investment, the ability to capture depreciation quickly meant investors could reduce taxable income and keep more money working for them.

Together, these changes were designed to help business owners and investors grow with more financial flexibility. But while the “Big, Beautiful Bill” provided many advantages during ownership, it didn’t solve another problem, the capital gains tax bill that arrives after the sale.

The Other Not So Big Beautiful Bill — Capital Gains Taxes

While the tax law improved deductions and expensing while you own a business or property, many investors face another major bill when they decide to sell, capital gains taxes.

Imagine you purchase equipment for your company or invest in property and take full advantage of immediate expensing and bonus depreciation. But if you choose to sell just a few years later, you could suddenly be hit with a massive capital gains tax bill that undermines those earlier benefits.

This is where proactive planning becomes essential.

Enter the Deferred Sales Trust (DST)

The Deferred Sales Trust is designed to handle the capital gains tax bill. Instead of paying capital gains taxes in one lump sum when you sell a business, property, or other highly appreciated asset, the DST allows you to defer those taxes under IRC 453 (the installment sale method).

With a DST, you gain the ability to spread out your tax liability over time rather than paying everything upfront. Instead of writing one massive check to the IRS the year of your sale, your payments and the taxes associated with them are distributed according to a schedule that aligns with your financial needs.

Another key advantage is flexibility. Whether you choose to sell in year two or year twenty, the DST can be tailored to your timing, your lifestyle, and your wealth-building goals. This makes it a versatile option for both near-term exits and long-term planning.

Most importantly, the DST allows more of your money to remain invested instead of being drained by immediate taxation. By keeping those funds at work, you create the opportunity for compounding growth helping you build a stronger nest egg before paying taxes later.

Putting It All Together

The “Big, Beautiful Bill” gave small businesses and real estate investors a range of tools to reduce taxable income and accelerate growth during ownership. But those benefits only address one side of the equation. The other side, the capital gains bill that comes with selling an appreciated asset, requires a strategy like the Deferred Sales Trust.

By combining the deduction and expensing advantages of the “Big, Beautiful Bill” with the capital gains deferral strategy offered by a DST, business owners and investors can create a comprehensive tax strategy that maximizes savings now and protects wealth in the future.

Frequently Asked Questions:

Why is EBITDA important when planning to sell a business?

Earnings Before Interest, Taxes, Depreciation, and Amortization is one of the key measures buyers use to value a business. By using deductions and depreciation during ownership, you can reduce taxes while also strengthening EBITDA, which can lead to a higher sale price when you’re ready to exit.

How does a Deferred Sales Trust (DST) work?

A Deferred Sales Trust allows business owners and investors to defer capital gains taxes when selling highly appreciated assets. Instead of paying taxes immediately at the time of sale, proceeds are placed into a trust in exchange for an installment note. This spreads out the tax liability, keeps more money invested, and provides flexible income over time.

Recommended Links:

Capital Gains Tax Worries? Learn How This Strategy Can Help You Save

Utilizing the DST For Your Exit Strategy

IRS publication on installment sales

Compare a DST with a Self Directed 401K

· ·

When it comes to deferring capital gains on the sale of appreciated assets such as real estate, a business, or collectibles, the Deferred Sales Trust (DST) continues to stand out as a flexible and powerful strategy. One of the most effective ways to explain its advantages is by comparing it to something more familiar self-directed 401(k).

At Reef Point, we often use this comparison to help clients understand the unique benefits of the DST structure. Here’s how a DST operates similarly to a personal or self-directed 401(k) and in many ways, offers even greater adaptability and efficiency.

1. You Negotiate Reinvestment Decisions

Once your asset is sold and the proceeds are placed into the DST, as the note holder, you have the rights of a creditor to approve all investment decisions.

2. Flexible Distributions Aligned With Your Needs

One of the most appealing features of a DST is the ability to negotiate the timing and amount of distributions. You negotiate what distributions to request and when, and those requests can be modified as your financial situation evolves.

3. Taxes Only on What You’re Repaid

With a DST, you will only incur taxes on the repayments you choose to receive. Even if the trust earns income, you are only taxed on the amount you elect to take out in a given year. This provides meaningful opportunities for strategic tax planning.

4. Seamless Legacy and Estate Integration

The DST also works in tandem with your estate planning goals. When paired with a revocable living trust, the DST becomes one of your estate’s assets. You can establish beneficiaries, set distribution preferences, and leave detailed guidance for your successor trustee. Importantly, your passing does not trigger taxation, allowing your heirs to continue using the DST with the same tax deferral benefits.

5. Strong Asset Protection

Like a 401(k), the DST offers significant protection from potential future creditors. The assets within the DST are difficult, if not impossible to access through legal claims, making it a powerful safeguard for preserving your wealth.

If you’re planning to sell an appreciated asset and want to mitigate capital gains taxes, the Deferred Sales Trust offers unmatched flexibility, estate planning benefits, and financial protection. It’s not just a strategy for tax deferral it’s a long-term planning tool designed to help you preserve and pass on wealth more efficiently.

Key Points of Comparison:

As it relates to a comparison to a 401K Plan:

Investment decisions require your approval;

Negotiated repayments to you from your DST are similar to individual decisions you might make in drawing from your 401k;

In both cases you are only required to recognize and pay taxes on funds you personally receive each year; The key difference is that funds received from a 401k are always treated as ordinary income, but funds received from your DST can have components including interest taxed as ordinary income, gain or appreciation taxes at capital gains rates, depreciation recapture taxed as recapture rates, and return of basis (representing your original investment) repaid to you TAX FREE.

The Structure of the DST, similar to ERISA laws relating to 401k’s provide very strong asset protection from future creditors attempting to satisfy claims against your principal.

Interested in learning how the DST might fit into your financial goals? Contact Reef Point LLC free personalized consultation.

Schedule a Consultation or call us at 866-867-8633.

4 Most Used Tax-Deferred Strategies

· ·

4 Most Used Tax-Deferred Strategies | Reef Point LLC

An effective tax strategy is a year-long process. It requires planning, evaluation and review. While eliminating taxes is nearly impossible, tax deferral strategies allow you to delay payment and lower your overall tax obligation. If you have a high net worth, are in a high-income bracket or intend to sell highly appreciated assets, you could owe a hefty tax bill unless you take steps to offset or lower your taxes.

Why Should You Implement Tax Deferral Strategies?

Deferring your taxes doesn’t necessarily mean you avoid paying them forever. However, it does prevent you from paying a large sum in any given year. The benefits of tax deferment include:

  • Increased retirement savings: Many strategies give you more income for retirement, helping you secure a comfortable living.
  • Increased control: While you may still owe taxes, deferment strategies place you in the driver’s seat. You have much more control over when you pay your taxes and how much you owe in any given year.
  • Increased wealth: Using strategies that allow you to invest your money in tax-deferred products prevents you from paying taxes until you draw on the money and increases your wealth through investment returns and compounded interest.
  • Reduced taxes: When you draw down on tax-deferred investments, your income may put you in a lower tax bracket, reducing how much you pay in the long run.

Tax deferral strategies allow you to put your money to work for you, improving your current and future financial security.

What Strategies Are Used Most Often?

The best approaches are the ones that offer you the greatest benefits now and into the future. Here are four methods that often allow you to get the most mileage from deferring your taxes.

1. Contribute to Retirement Accounts

Whether you work for a company that offers retirement benefits, you can contribute to retirement accounts. Your options include:

  • Employer-sponsored plans: Employer-sponsored retirement plans include 401(k), 403(b) and 457 plans. The government allows you to contribute up to a specified pre-tax amount. In 2023, the total contribution limit is $22,500 for those under 50. If you’re 50 or older, you can bump that amount up to $30,000. Annually, you can contribute up to $6,500 or $7,500 if you are at least 50.
  • Traditional individual retirement accounts: If you don’t have an employer-sponsored plan, you can open a traditional IRA with the same limits as employer-sponsored plans. If you participate in a 401(k), 403(b) or 457 plan, you may still be able to make pre-tax contributions to a traditional IRA, but the limit decreases as your income increases.

If you are self-employed, you can choose between any of the retirement vehicles.

2. Invest in Tax-Deferred Investment Vehicles

In addition to retirement account contributions, other investment vehicles qualify for tax deferment.

Cash-Value Life Insurance

Cash-value life insurance is among the most popular tax deferral strategies for high income earners. While your beneficiaries generally won’t pay taxes on the death benefits they receive when you take out a life insurance policy, cash-value life insurance, such as whole life policies, provides a tax benefit to you.

You still pay taxes on the amount you pay into the policy. However, the cash value portion of your premiums grows through interest and investment returns. You won’t pay taxes on those earnings unless you draw money from the account (another benefit of these policies).

529 Education Plan

Another tax-deferred investment vehicle is a 529 education plan. These plans allow you to save money for education expenses. Like cash-value life insurance, you pay taxes on contributions, but they grow tax-free. However, you won’t be taxed on withdrawals if they are for qualified education expenses.

Health Savings Account

Health savings accounts work the same way as 529 education plans, except you must use the money for qualifying medical expenses to receive the full tax benefits.

Annuities

An annuity is an agreement between you and an insurance provider. You make one or more payments to the insurer in return for an income stream at a later date. The money you pay grows tax-free, but you’ll owe taxes when you begin receiving payments.

3. Invest in Municipal Bonds

Municipal bonds are loans to a local or state government. When you enter into a loan agreement, the government makes monthly payments to cover the interest on the money you loaned. The interest payments you receive are tax-free at the federal level but may incur taxes at the state or local level.

Once the bond reaches maturity, the government pays you the amount it borrowed in full. Unless you reinvest it using another tax deferral strategy, you will owe taxes on the loan amount. However, you can choose short-term bonds that mature in one to three years or long-term bonds that won’t mature for 10 years or more, giving you control over when you pay taxes.

4. Open a Deferred Sales Trust

A deferred sales trust is one of the best capital gains tax deferral strategies. If you have highly appreciated assets (such as real estate, jewelry or art), selling them can lead to a high tax bill. Though long-term capital gains are generally taxed at 0%, 15% or 20%, the government taxes short-term capital gains as regular income.

A deferred sales trust allows you to delay and potentially reduce capital gains taxes while growing the profits from a sale and providing a future income stream. Reef Point works with you to establish a trust before you sell the asset. You agree on the terms, including when you will start receiving payments and how much you will receive monthly.

After the asset’s sale, the profits go to the trust, and the trustee invests in suitable investment vehicles. You won’t pay taxes on the money as long as it is in the trust. Once you begin receiving payments, you will owe taxes for the amount you receive in a given year. Often, these payments place you in a lower tax bracket, reducing your overall tax burden.

Talk to a Reef Point Advisor

Reef Point’s sole purpose is to help you implement tax deferment strategies to save money and improve your financial security. Contact us today to find out if a DST is suitable for you.

Sources:

https://www.irs.gov/newsroom/401k-limit-increases-to-22500-for-2023-ira-limit-rises-to-6500

https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people

https://www.irs.gov/taxtopics/tc409