Deferred Sales Trust™


What is a Deferred Sales Trust?

A deferred sales trust is a method used to defer capital gains tax when selling real estate or other business assets that are subject to capital gains tax. Instead of receiving the sale proceeds at closing, the money is put into a trust and only taxed as the funds from the sale are received. This strategy allows you to reinvest the money from the sale into investments that aren't allowed by other capital gains tax deferral strategies.

Deferred sales trusts work with Internal Revenue Code 453, which is a tax law that prevents a taxpayer from having to pay taxes on money they haven't yet received on an installment sale.

The idea behind a deferred sales trust is to sell the real estate asset to the trust with an installment sale. The trust then sells the real estate to the buyer, and the funds are placed in the trust without paying taxes on the capital gains.

The trust doesn’t have any capital gains taxes because it sold the real estate asset for the same amount it paid for it with the installment sales contract. As the seller, you don’t pay any capital gains taxes yet because you haven’t constructively received (physically received) the funds from the sale.

The installment contract from the sale can be set up any way you wish. You can begin receiving installment payments right away or defer them for several years.

The third-party trustee can invest the funds however you like. You can earn interest income on the money from the real estate sale while it sits in the trust. You only begin paying capital gains taxes when you start receiving principal payments.


Less Tax Liability with Greater Flexibility

The DST™ achieves tax deferral because capital gains are not recognized at the time of the sale.  The DST™ is a specialized installment sale based on IRC Section 453 (or seller carry-back) of the IRS tax code. Instead of receiving the proceeds in a lump sum at the time of the sale, the seller opts to receive payments made over time. 

Hypothetical Scenario 1: Commercial Property Sale


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