453 Installment Sale

The 453 installment sale is the legal basis for the Deferred Sales Trust. Also known as IRC 453, this section of the tax code has been well-established for over ninety years. Potential investors are often interested in the Deferred Sales Trust’s relationship to the tax code. Is the trust a legal investing strategy? Is it likely to be audited by the IRS? These are understandable questions that should always be asked when considering a new type of investment method.

Our team will walk you through the legalities of the Deferred Sales Trust and explain how this 453 installment sale can help you save on capital gains tax following the sale of your business or property.

The Deferred Sales Trust is legally governed by Section 453 of the Internal Revenue Code. IRC 453 has been around for over ninety years. Using the Deferred Sales Trust to sell your asset is classified as an “installment sale” or “installment method,” as found in IRC 453. During a 453 installment sale, you are not selling your asset directly to a buyer for profit. Instead, you are selling your asset to the trust for a promissory note. The trust then sells the asset to the buyer. IRC 453 prevents constructive receipt, which requires you to pay capital gains tax on the sale.

Because the sale of your asset to the trust is classified as an “installment sale” under Section 453, you can legally defer capital gains taxes on the proceeds (you still must report the income from your sale to the IRS using Form 6252).

When you complete a 453 installment sale, you set up a monthly payment contract with the deferred sales trust (this is outlined in your promissory note). The trust will pay you a portion of your proceeds every month. You have control over how you structure your monthly installments.