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What is an Installment Sale?

Reef Point LLC · April 27, 2022 ·

What Is an Installment Sale? | Reef Point LLC

The Internal Revenue Service defines an installment sale as one in which “you’ll receive at least one payment after the tax year in which the sale occurs.” 

Section 453 of the Internal Revenue Code authorizes the installment sale method for taxpayers who use it when selling certain of their assets, such as the following:

  • A business or business interest
  • A commercial real estate investment
  • Your personal residence
  • One or more high-value antiques or collectibles

Installment Sale Advantages

The main advantage of utilizing the installment sale method when selling one of your highly appreciated assets is that the IRS allows you to spread payment of your long-term capital gains taxes over the life of your installment sale contract, rather than insisting that you pay them in one fell swoop at the time of sale.

With the 2022 long-term capital gains rate set at 20% if you’re a married taxpayer filing jointly and the two of you have a total annual income over $517,200, this represents a substantial savings.

Installment Sale Disadvantages

Unfortunately, what the IRS giveth, it can also, and usually does, taketh away. For instance, Section 453 specifically excludes all of the following from disposition by installment sale:

  • Stocks, bonds and other securities that you traded on an “established securities market”
  • Inventory
  • Certain real estate trades or businesses, such as Developers

In addition to IRS restrictions on installment sales, you also face increased ownership risks, including the following, when you sell real estate via a ‘Traditional’ installment sale:

  • You provide your own financing for your buyer.
  • You consequently put yourself at his or her mercy with regard to refinancing or default.
  • You have only the real estate itself as collateral.

The Deferred Sales Trust Alternative

Fortunately, there is a way for you to obtain all the capital gains deferral benefits of an installment sale without incurring any of the disadvantages associated with conventional installment sales. It’s called the Deferred Sales Trust, and is the safe, legal, proprietary version of the installment sale method authorized by the IRS.

The DST is offered only by the Estate Planning Team, in conjunction with Campbell Law and its affiliates, including Reef Point. Since developed more than 20 years ago, the Team has implemented over 3,000 DST transactions, representing hundreds of millions of dollars.

During this period of time, the DST has “passed” 14 IRS field audits, and at least 3 direct IRS reviews, all of which resulted in no-change letters. In addition, both the Securities and Exchange Commission and the Financial Industry Regulatory Authority have reviewed the DST and issued no adverse opinions.

DST Applications

Three of the DST’s main applications consist of the following:

  1. Exit strategy from your business, personal residence, commercial real estate investments or volatile investments such as cryptocurrency
  2. 1031 exchange alternative
  3. Rescue from a failed 1031 exchange

In addition to outstanding capital gains tax deferral, the DST can likewise benefit you in the following ways:

  • Reduce your ownership risks
  • Maintain your family wealth
  • Provide you with the retirement income you desire

Intrigued?

If you’re contemplating the sale of a highly appreciated asset, there’s no better time to contact Reef Point. We will be happy to discuss it with you and help you determine if utilizing the remarkable DST is the right financial strategy for you.

Deferred Sales Trust Deferred Sales Trust, DST, Exit Strategy, Installment Sale, Tax Strategy

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Reef Point LLC was founded by Gregory H. Reese who is one of only 13 Trustees in the US for Deferred Sales Trusts.

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3525 Hyland Ave., Suite 145
Costa Mesa, CA 92626
714-581-5376
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As an authorized and approved Trustee for the Deferred Sales Trust and Member of the Estate Planning Team (EPT), Reef Point, LLC promotes the use of the Deferred Sales Trust™ or other estate planning techniques and is not responsible for recommendations made by other members of the Estate Planning Team, including the Deferred Sales Trust or other tax, legal or estate planning strategies.

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