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Articles Posted in Installment Sales

How to Reduce Capital Gain Taxes Under Biden’s 2021 Proposal Using an Installment Sale Under Current Internal Revenue Code Section 453.

By Paul J. Lesti, CSSC, RSP, MSSC

There are reports that President Biden’s 2021 American Families Plan proposes to increase the marginal tax rate for capital gains to 39.6% for those earning more than $1 million.  This article will outline existing relevant taxes, exemptions and fees, and describes a solution using current tax laws.  Please note that this increased capital gain rate proposal is not a law and will likely change before being finalized.

One can now sell a home or real estate and get a tax-deferred, guaranteed payment stream for retirement or for any other purpose.

This is an Installment Sale under Internal Revenue Code Section 453 that has been used for years.  Now, a new feature to this Installment Sale transaction allows the seller to receive the future payments guaranteed by a highly regulated trust company or a large life insurance company.  This is called a Structured Installment Sale or a Structured Sale.

A Structured Installment Sale allows the seller to avoid large tax increases, i.e. 15% to 20% for Federal capital gain taxes, 9.3% up to 13.3% for California capital gain taxes, and 3.8% for the Affordable Care Act.  Some taxpayers may even be subject to the Alternative Minimum Tax (AMT).

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