If you are planning to sell highly appreciated real estate, a closely held business, or private company stock, do not let the tax bill become an afterthought. There may be a way to defer the capital gains tax for years, even decades, but only if you plan before the sale, not after.
One strategy worth considering is a deferred sales trust. Instead of selling your asset directly to the buyer, you first sell it to an independent trust in exchange for an installment note. The trust then completes the sale to the buyer. Because you receive payments over time rather than all at once, you generally pay the capital gains tax as those payments are received, not on the full amount up front.
The biggest advantage is that the full pre-tax sale proceeds can stay invested instead of being immediately reduced by taxes. That lets more money compound over time and can provide a steady stream of retirement income for years to come.
Unlike a Section 1031 exchange, a deferred sales trust does not require you to buy replacement real estate within strict deadlines. It can also offer more investment flexibility if you are ready to move beyond real estate altogether, since the trust can reinvest the proceeds in a broad range of assets rather than another property.
This strategy is not for everyone, though. The IRS scrutinizes these transactions closely, so they require careful planning before you sign a binding sales agreement, and the trust must be genuinely independent from you as the seller. It is also worth knowing that, unlike a 1031 exchange, a deferred sales trust generally does not preserve the step-up in basis that heirs receive when appreciated real estate is held until death, so it changes the long-term estate picture as well as the immediate tax bill.
What this means for you: If a large sale is on your horizon, the planning has to happen before you sign anything, not after. Let us walk through whether a deferred sales trust fits your situation.
