Structured Installment Sales: A Niche Strategy for Tax Deferral

I recently attended a seminar hosted by a company that specializes in Structured Installment Sales — a concept that immediately reminded me of structured settlements often seen in personal injury cases. Like those, this isn’t for everyone. Most sellers instinctively prefer to collect the full sale price upfront and invest the proceeds themselves. But for the right person, this strategy offers a compelling opportunity: long-term passive income and meaningful tax deferral, all without the day-to-day management of capital.

It’s another tool in the real estate toolbox — and one worth understanding.

What Is a Structured Installment Sale?

At its core, a Structured Installment Sale is a method for deferring capital gains taxes using the installment method outlined in Internal Revenue Code § 453. The basic idea is to spread out the recognition of taxable income over a period of years, rather than recognizing it all in the year of sale.

But unlike a traditional installment sale — where the buyer pays the seller over time, often with a note — in a structured installment sale, the buyer pays in full at closing, typically using cash or a loan. The key distinction is what happens next:

The seller redirects all or a portion of those funds into a structured annuity provided by a highly rated insurance carrier, which then makes scheduled payments back to the seller over time.

This allows the seller to avoid constructive receipt at the time of closing and thereby defer taxes until payments are actually received. It’s a legally sound, IRS-compliant strategy used by sellers of appreciated assets like investment property, businesses, or even collectibles.

Why Consider It?

Structured Installment Sales aren’t just about deferring taxes — they’re also about creating predictable, passive income without having to self-manage investments. Available options include:

• Fixed annuities, which begin paying within 12 months and yield 2%–3.5%
• Index-linked annuities, which can defer the first payment for up to 40 years and offer potential upside tied to market performance (with guaranteed minimums)

The flexibility makes this an attractive option for real estate investors, business owners, or trustees selling high-gain assets — particularly those focused on retirement planning or multi-generational wealth transfer.

Practical Considerations

For sellers and buyers in Newport Beach, Costa Mesa, or the surrounding Orange County coastal markets, where high-value sales often trigger substantial capital gains, this tool offers a practical and often overlooked solution.

At Lucas Real Estate Group, we regularly assist sellers, trustees, and investors with structuring complex sales, exploring tax-saving opportunities, and navigating every legal and transactional detail. This includes confidential transactions and estate-related sales where timing and planning are critical.

Important: To comply with IRS rules, the structured installment sale must be built directly into the sales agreement. The funds must go straight from the buyer to the third-party annuity provider — not through the seller — to avoid triggering immediate tax liability.

Final Thoughts

Most sellers will continue to prefer full payment at closing and direct control over their proceeds. But in the right situation — especially when capital gains, estate planning, or retirement income is a concern — a Structured Installment Sale offers a legally compliant, financially sound alternative.

Sources

• 26 U.S. Code § 453 – Installment Method (Cornell Law)
• JCR Settlements – Installment Sales Overview
• IRS Publication 537 – Installment Sales

Questions or Need Help?

Thinking of selling California real estate? We would love the opportunity to assist — we provide full-service sales and property management in Newport Beach, Costa Mesa, and surrounding areas. Whether you’re a homeowner, trustee, or investor, call or email anytime for a free consultation: [email protected] or 949-478-1623.

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— Devin Lucas
Author Devin R. Lucas is a Real Estate Broker, REALTOR® and Real Estate Attorney specializing in Newport Beach, Costa Mesa, and Orange County coastal communities. Courtney Lucas, a licensed CPA, Real Estate Salesperson, and REALTOR®, provides expert financial insight alongside real estate services. Together, they lead Lucas Real Estate, operating in conjunction with Coldwell Banker, the region’s premier luxury brokerage.

Lucas Real Estate offers unmatched expertise in:

• California real estate sales
• Property management
• Capital gains strategies
• Tax deferral tools like 1031 exchanges and Structured Installment Sales
• Proposition 13, 58, 193, 60, 90, and Prop 19 matters

Contact Us:
✉️ [email protected] | 📞 949-478-1623