How do I defer capital gains tax on a real estate sale?

A Structured Installment Sale (SIS) defers capital gains by directing your sale proceeds from escrow into a trust — you never take constructive receipt. The trust then pays you quarterly installments over 5–20 years. Taxes are paid only on the gain portion of each installment as received, per IRS Code Section 453. Unlike a 1031 exchange, there is no requirement to purchase replacement property.

What is the capital gains tax rate on selling a house or investment property?

Federal long-term capital gains rates are 0%, 15%, or 20% depending on taxable income. The Net Investment Income Tax (NIIT) adds 3.8% for individuals earning above $200K (single) or $250K (married). State taxes range from 0% to 13.3% depending on your state. Depreciation recapture on rental property is taxed at up to 25%. A structured installment sale spreads these taxes over 5–20 years.

Can I use a structured installment sale for rental property?

Yes. Rental and investment properties are among the most common assets for a structured installment sale. This avoids the restrictive timelines and replacement property requirements of a 1031 exchange. Depreciation recapture (taxed at ordinary income rates up to 25%) is also spread proportionally across installment payments.

How is a structured installment sale different from a 1031 exchange for real estate?

Key differences: (1) No replacement property required — a 1031 exchange requires identifying like-kind property within 45 days and closing within 180 days. (2) No tight deadlines. (3) You receive cash income instead of acquiring another illiquid asset. (4) SIS works for any property type including personal residences (above exclusion). Both defer capital gains taxes, but SIS provides income while 1031 requires continued real estate ownership.

What is the NIIT and how does a structured installment sale reduce it?

The Net Investment Income Tax (NIIT) is a 3.8% surtax on investment income for high earners (above $200K single / $250K married). By spreading a large capital gain over 5–20 years through an SIS, annual recognized income may stay below NIIT thresholds, potentially avoiding this additional tax entirely on some or all installment payments.

What types of real estate qualify for a structured installment sale?

Qualifying properties include residential investment property, commercial real estate, agricultural and farmland, vacation homes, multi-family residential, raw land, and personal residences (for gains exceeding the $250K/$500K exclusion). The minimum transaction with IGH Trust is $100,000.

Does the $250K/$500K primary residence exclusion affect SIS eligibility?

The primary residence exclusion ($250K for single filers, $500K for married filing jointly) applies first. If your gain exceeds the exclusion, the remaining taxable gain is eligible for a structured installment sale. For example, a married couple selling a home with a $700K gain could exclude $500K and structure the remaining $200K through an SIS.

What interest rates does IGH Trust offer on real estate structured installment sales?

IGH publishes transparent, fixed interest rates: 5% for 5-year notes, 6% for 10-year notes, 6.5% for 15-year notes, and 7% for 20-year notes. Both fully amortized and interest-only with balloon payment options are available for 10+ year terms. Rates are the same regardless of property type.

Tax Implications of Selling Real Estate Using a Structured Installment Sale

A Structured Installment Sale (SIS) allows real estate sellers to defer capital gains taxes by directing sale proceeds into a trust instead of receiving them at closing. Rather than paying 20–40% in combined federal, state, and NIIT taxes upfront, the seller receives quarterly installment payments over 5–20 years and pays capital gains taxes only on the gain portion of each payment as received — authorized under IRS Code Section 453 and documented in IRS Publication 537.

The Real Cost of Selling Real Estate

When you sell appreciated real estate, multiple tax layers apply simultaneously. Understanding these costs is essential before choosing a strategy.

Tax Type	Rate	Applies To
Federal Capital Gains	0%, 15%, or 20%	Based on taxable income bracket
Net Investment Income Tax (NIIT)	3.8%	Income above $200K (single) / $250K (married)
Depreciation Recapture	Up to 25%	Previously depreciated rental/investment property
State Income Tax	0% – 13.3%	Varies by state (CA, NY, NJ, HI highest)

Combined, these taxes can consume 20–40% of your sale proceeds at closing — often hundreds of thousands of dollars on a single transaction.

How a Structured Installment Sale Changes the Math

David purchased an investment property for $150,000 in 2006. It's now worth $600,000 — a $450,000 capital gain. Here's how a traditional sale compares to a Structured Installment Sale.

Traditional Sale

Sale Price$600,000

Cost Basis($150,000)

Capital Gain$450,000

Tax Due at Closing($110,000)

Annual Income$0

Interest Earned$0

Net Proceeds$490,000

Structured Installment Sale — 15-Year Note

Sale Price$600,000

Cost Basis($150,000)

Capital Gain$450,000

Tax Due at Closing$0

Annual Income (6.5%)$62,400

Total Interest Earned$336,000

Total Payments Received$936,000

$110K

Tax Deferred at Sale

$336K

Interest Earned

$446K

Total Advantage vs. Traditional

Based on estimated federal and state capital gains taxes. Actual results depend on individual tax situation. Consult your CPA for specific advice.

How It Works: 3-Step Process

Step 1

Promissory Note Issued

You select payment terms (5, 10, 15, or 20 years) and receive a secured promissory note from the IGH Trust. Terms, rates, and payment schedules are documented and enforceable.

Step 2

Property Sold & Funds Enter Trust

At closing, the proceeds go directly from escrow into the IGH Trust. You never take constructive receipt of the funds — this is the critical requirement for IRS compliance under Section 453.

Step 3

Deferred Taxation & Income Begins

You receive regular quarterly payments per your note. Capital gains taxes are recognized only on the gain portion of each installment as you receive it, potentially keeping you in a lower tax bracket.

Payment Structures & Published Rates

IGH Trust publishes transparent, fixed interest rates — the same rates regardless of property type or transaction size.

Term	Interest Rate	Structure Options	Best For
5-Year	5%	Interest-only + balloon	Maximum cash flow now
10-Year	6%	Fully amortized OR interest-only + balloon	Balanced income & deferral
15-Year	6.5%	Fully amortized OR interest-only + balloon	Higher compounding, more income
20-Year	7%	Fully amortized OR interest-only + balloon	Maximum tax deferral & growth

Rates subject to change. Contact us for current rates and terms.

Eligible Property Types

Residential Investment Property

Single-family rentals, duplexes, condos

Commercial Real Estate

Office buildings, retail spaces, warehouses

Agricultural / Farmland

Working farms, ranch land, agricultural parcels

Vacation Homes

Second homes and seasonal properties

Multi-Family Residential

Apartment buildings, fourplexes

Raw Land

Undeveloped parcels and lots with appreciated value

Minimum transaction: $100,000. Personal residences eligible for gains above the $250K/$500K exclusion.

Frequently Asked Questions — Real Estate Tax Deferral

Related Resources

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What is a SIS?

Complete guide to Structured Installment Sales

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Use our free Revenue Estimator to compare a traditional sale vs. a Structured Installment Sale with your actual numbers — or schedule a consultation.

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Important Disclosure

This information is provided for general educational and informational purposes only. It is not intended to be specific investment, tax, or legal advice and should not be relied upon as such. Tax rates and regulations are subject to change.

Always consult your tax advisor and/or attorney for specific advice pertaining to your specific situation. Rates and terms are subject to change. Past performance is not indicative of future results. Iron Gate Holdings and its affiliates do not provide tax or legal advice.