Sold for a gain? You don't have to pay the tax this year.
A Deferred Sales Trust is an installment sale under IRC §453. It lets you sell a highly appreciated business, property, stock or other asset and defer the capital gains tax — recognizing it only as payments come to you.
- Installment sale under IRC §453
- Davenport & Associates, est. 1997
- Reviewed by the IRS in 2006, 2008 and 2019
- Audit defense for the life of the trust
The Problem
On a large sale, the tax isn't one number. It's a stack.
Most sellers budget for the headline capital gains rate and are surprised by what sits on top of it. Depending on the asset and the state, the combined bill can approach a third of the gain — due in the year you sell.
Federal long-term capital gains
Top bracket rate on the gain.
Depreciation recapture
On unrecaptured §1250 gain from rental, commercial and farm property.
Net investment income tax
Applied on top of the capital gains tax for most sellers.
Collectibles rate
Art, collectibles and precious metals are taxed above the standard rate.
State capital gains tax
6.99% in Connecticut, 10.9% in New York, 13.3% in California. None in Florida or Texas.
Who This Is For
A 1031 exchange only works for real estate. This doesn't have that limit.
Because a Deferred Sales Trust is an installment sale rather than a like-kind exchange, it is not restricted to one asset class.
Business Owners
You've spent decades building the company and the exit is taxed almost entirely as gain. A 1031 exchange does nothing for you — it covers real property only.
Real Estate
You want out of the asset, not into another one. A 1031 requires you to keep buying property on a 45-day clock; a DST does not.
Stock & Concentrated Positions
A single holding has grown into most of your net worth. Diversifying means realizing the gain — and a low basis makes that expensive.
Other Appreciated Assets
Cryptocurrency, artwork, collectibles, farmland, a professional practice — if it has appreciated substantially, it may be eligible under IRC §453.
The Deferred Sales Trust
How the structure works
An installment sale under IRC §453, using a third-party trust as the intermediate buyer.
You sell to the trust
Before closing, you sell the asset to a non-grantor business trust in exchange for a secured promissory note — not cash. A security agreement pledges the trust's assets against that note.
The trust resells to your buyer
The trust completes the sale to the buyer for cash at the same price. Because the trust's basis matches what it paid you, the resale itself produces no taxable gain.
Proceeds are invested inside the trust
The cash stays in the trust and is invested. Where the distribution rate is set below the note rate, the difference accumulates inside the trust on a tax-deferred basis.
You're paid over time
You set the payment schedule when the note is created, and it can be amended later. Capital gains tax is recognized only as principal payments reach you.
You are a creditor, not a beneficiary
The trust has no beneficiaries. You hold a secured note against it, which places you ahead of an equity position — and keeps the structure within §453.
The note is an estate asset
It can be inherited. Your heirs pay tax only on the payments they actually receive, rather than facing the full gain at once.
One trust per household
A separate DST is established for each household. If you sell another asset later, it is added to the same trust as an additional note.
Compare
Three ways to handle a highly appreciated sale
| Sell Outright | 1031 Exchange | Deferred Sales Trust | |
|---|---|---|---|
| Capital gains tax | Due in full in the year of sale | Deferred while you keep exchanging | Deferred; recognized as payments are received |
| Which assets qualify | Any | Real property only — not a business, stock, crypto or collectibles | Business, real estate, stock, crypto, collectibles and other appreciated assets |
| Deadlines | None | 45 days to identify, 180 days to close | Structured before closing; no replacement-property clock |
| Must you reinvest? | No | Yes — into like-kind real property | No replacement purchase required |
| Access to proceeds | Immediate, after tax | Locked into the next property | By the installment schedule you set |
| Diversification | Possible, after tax | Constrained to real estate | Trust assets can be invested across asset classes |
| At death | Tax already paid | Heirs may receive a stepped-up basis | Note passes to heirs; tax follows the payments they receive |
| Authority | — | IRC §1031 | IRC §453, installment sale treatment |
A Deferred Sales Trust defers capital gains tax; it does not eliminate it. Which approach fits depends on your circumstances — discuss any of them with your own CPA and attorney.
Why It Holds Up
Established law, and a clear line between this and what the IRS has flagged
Installment sale treatment under IRC §453
Deferring gain on a sale paid for over time is long-standing tax law. The DST applies that treatment through a third-party trust rather than seller financing.
Reviewed by the IRS in 2006, 2008 and 2019
The structure has been examined on three occasions and found compliant where it is properly implemented. Implementation is what matters.
A DST is not a Monetized Installment Sale
The IRS has flagged Monetized Installment Sale arrangements, in which the seller takes an immediate cash loan against the installment note. A Deferred Sales Trust involves no monetization and no early cash-out — which is precisely the feature the IRS objected to.
Audit defense for the life of the trust
Todd Jackson, Esq. provides the legal work and audit defense for each DST, for the life of the trust, at no additional charge.
The Team
Who structures and stands behind the trust
John F. Davenport, Esq.
President, Davenport & Associates
A licensed estate and tax attorney in New York and Connecticut. He founded Davenport & Associates in 1997 and leads the firm's planning work for clients approaching a major liquidity event.
Kent LeFevre
National DST Trustee
Trustee through Guardian DST Services WY LLC. As an independent third party, he administers the trust — a separation that is essential to the structure.
Todd Jackson, Esq.
Tax & Transactions Counsel
An M&A, real estate and tax attorney with a 32-year career and more than $30 billion in completed transactions. He performs the legal work and provides audit defense for the life of each trust at no additional charge.
Capital Gains Estimator
See your estimated tax in about two minutes
Answer a few questions about the sale and we'll show you an estimate of what you'd owe if you sold outright — and whether a Deferred Sales Trust fits your situation.
Common Questions
Frequently asked questions
Is a Deferred Sales Trust legal?
Yes. A Deferred Sales Trust applies installment sale treatment under IRC §453, which is long-established tax law: when you are paid for an asset over time, you generally recognize the gain as payments are received rather than all at once. The structure has been reviewed by the IRS in 2006, 2008 and 2019 and found compliant where it is properly implemented. Implementation is what determines the outcome, which is why the legal work and ongoing audit defense are handled by tax counsel.
How is this different from a 1031 exchange?
A 1031 exchange applies to real property only, and it requires you to reinvest in like-kind real estate on a strict timetable — 45 days to identify a replacement and 180 days to close. You defer the tax by continuing to own real estate.
A Deferred Sales Trust is an installment sale, not an exchange. It is not limited to real estate, so it can apply to a business, stock, cryptocurrency or collectibles; there is no replacement property to find; and the proceeds held by the trust can be invested across asset classes rather than in a single property.
Is this the same as a Delaware Statutory Trust?
No. They share the initials "DST" and nothing else. A Delaware Statutory Trust is a vehicle for holding fractional interests in real property, commonly used as replacement property in a 1031 exchange. A Deferred Sales Trust is an installment sale of your asset to a third-party trust under IRC §453. Different structures, different tax sections, different purposes.
Is this a Monetized Installment Sale?
No, and the distinction matters. In a Monetized Installment Sale the seller takes an immediate cash loan against the installment note, which produces the economics of a cash sale while reporting the gain over time. The IRS has flagged those arrangements.
A Deferred Sales Trust involves no monetization and no early cash-out. You are paid under the note according to the schedule you set, and the tax follows those payments — which is precisely the feature the IRS objected to in monetized arrangements.
Does a DST eliminate my capital gains tax?
No. It defers the tax; it does not eliminate it. Capital gains tax is recognized as you receive principal payments under the note. What changes is the timing — instead of the full liability landing in the year of sale, it is spread across the schedule you choose, which also means the pre-tax proceeds can remain invested inside the trust in the meantime.
What happens to depreciation recapture?
Depreciation recapture on rental, commercial and farm property is taxed at a federal rate of up to 25% on unrecaptured §1250 gain, and it is not covered by the primary-residence exclusion. It is frequently the largest single surprise in a property sale. Like the rest of the gain, recapture is deferred under installment treatment and recognized as payments are received. How it is allocated across your payments is a question for your CPA.
Can I use this when I sell my business?
A business or professional practice is one of the most common reasons sellers look at this structure, precisely because a 1031 exchange is unavailable to them. Two points deserve attention with your own advisers: if your company is a C corporation and the shares may be qualified small business stock under IRC §1202, an exclusion of up to the greater of $10 million or 10× your basis may be available and could outweigh everything else. And where the sale is structured as an asset sale, equipment and similar property can produce ordinary-income recapture under §1245, which is taxed at a higher rate than the §1250 figure used in our estimate.
Is there a minimum size?
Our Deferred Sales Trust program is designed for sales producing a capital gain of at least $300,000 and net proceeds of at least $1,000,000. Both conditions need to be met, because below that level the cost of establishing and administering the trust is difficult to justify against the benefit. If your sale falls below either threshold, our tax offset strategies may still help reduce the projected tax, and the estimator will point you there.
When does the trust need to be set up?
Before the sale closes. The structure depends on you selling the asset to the trust rather than to the buyer, so it must be in place ahead of closing. Once you have taken receipt of the proceeds, installment treatment is no longer available for that sale. The earlier the conversation happens in your transaction, the more straightforward it is.
How accurate is the estimator?
It is a screening estimate, not a tax computation. It assumes top-bracket rates and long-term holding, applies the net investment income tax to the full gain, and uses a single state rate. Your actual liability depends on your total income, holding period, entity structure, carryforwards, state-specific rules and other factors it does not ask about. Treat the figure as a starting point for a conversation with your own CPA and attorney.
Find out what the sale would cost you
The estimator takes about two minutes and shows your estimated capital gains tax either way — whether or not a Deferred Sales Trust turns out to be the right fit.