Frequently Asked Questions
What types of business or property sales can use this strategy to defer capital gains?
This strategy is generally used for closely held business interests, commercial real estate, investment property, and in some cases collectibles — assets where an outright sale would trigger a large capital gains tax liability in a single year. The structure is built on IRS Code §453 and is designed specifically for situations where significant appreciation has built up over time. Not every asset or transaction qualifies, and the specifics of each situation determine whether the structure is appropriate. Genesis works with clients and their tax advisors to evaluate eligibility before this approach is recommended.
What are the main risks of deferring capital gains through an installment sale?
Deferring capital gains through this structure comes with real trade-offs. Key risks include credit risk (the intermediary must fulfill payment obligations over the deferral period), regulatory risk (IRS rules or Congressional action could change how these structures are treated), and investment risk on the proceeds held during deferral. Liquidity is also a factor — proceeds are received over time rather than as a lump sum, which may not suit every seller's timeline or income needs. Genesis works with clients to weigh these risks against the potential benefits before any recommendation is made.
How does this compare to simply paying capital gains tax in the year of the sale?
In an outright sale, the full capital gains tax is due the year the sale closes — which can be a significant event depending on the size of the gain and your overall tax picture for that year. An intermediated installment sale defers that recognition over multiple years, which can reduce the immediate tax impact and allow the proceeds to work for you longer before taxes are due. The trade-off is added complexity, cost, and counterparty risk versus the simplicity of an outright sale. Whether the benefit outweighs the cost depends on the size of the gain, your timeline, and how the proceeds fit into your broader plan.
How does managing capital gains from a sale fit into a broader financial plan?
A transaction of this size rarely exists in isolation. How proceeds are structured, timed, and reinvested can affect retirement income, estate planning, investment positioning, and tax obligations for years to come. Genesis works with clients to coordinate these dimensions so the tax strategy and the overall financial plan are aligned from the start. For clients managing multiple planning priorities at once, this work may be part of the Genesis Premier Virtual Family Office™ — a coordinated approach that brings together the financial, tax, legal, and estate dimensions of a complex situation.
Do I need a financial advisor and a tax advisor to navigate capital gains on a sale?
Both. A transaction involving significant capital gains requires expertise that no single professional covers on their own. The tax advisor handles IRS compliance, documentation, and structuring requirements specific to the sale. The financial advisor evaluates whether the strategy fits your income needs, risk tolerance, and long-term goals — and ensures proceeds are positioned appropriately after the transaction closes. Genesis works alongside clients' existing CPAs and estate attorneys, or can help coordinate a team if one is needed.
Can real estate investors use this strategy to defer capital gains on a property sale?
Yes — real estate investors are among the most common candidates for this structure. When investment property has appreciated significantly over time, an outright sale triggers a capital gains tax event that can consume a substantial portion of the proceeds in the year of sale. The intermediated installment sale, built on IRS Code §453, allows real estate investors to spread that gain recognition over multiple years rather than absorbing it all at once. This can be particularly valuable for investors who are ready to exit a position but want to manage the tax impact alongside their retirement income, estate plan, or reinvestment strategy. Genesis works with clients to evaluate whether this approach fits their specific situation before any recommendation is made.
