Should you do a 1031 or a structured installment sale when rates are high?
A full 1031 exchange still defers the most tax. But if your building has a loan, full deferral means carrying at least that much new debt into the next building, at today's rates, and if that loan costs more than the next building's cap rate it lowers your cash flow every year. A structured installment sale needs no new loan: the old loan is paid off at closing and taxed in year one, and the rest of the gain is reported as payments arrive. A partial exchange with a structured carve-out sits in between.
Buyer cash → Assignment Co. → fixed annuity → You, on schedule
Hans Goldstein structures installment sales for sellers and works alongside their CPAs and brokers. Email hans@goldsteinco.net or call 213-414-2808.
What does each path actually require?
Full 1031 exchange. You buy a replacement worth at least what you sold, reinvest all the equity, and carry at least as much debt as was paid off, or add your own cash to cover any gap. Debt you don't replace is boot, and boot is taxed (IRC §1031(b); Treas. Reg. §1.1031(d)-2-2), Example 2). Your old loan almost never comes along, because commercial notes carry due-on-sale clauses. So "replace the debt" means a new application, appraisal and approval, closed inside the 180-day window.
Structured installment sale. The buyer pays in full at closing and your old loan is paid off from the proceeds. Part of the price goes to an assignment company, which takes on the obligation to pay you and funds it with a fixed annuity from an insurer. You report the gain under IRC §453 as payments arrive. No new building, so no new loan. It is not seller financing: you are not the lender.
Combination. Exchange into a smaller replacement with a smaller loan and structure part of the cash you take out. Some gain is taxed in year one, some is spread, the rest stays deferred.
The deal on my desk: the paths side by side
Illustrative, rounded. An office building selling for about $4.0 million at about a 6.4% cap rate (net operating income about $256,000). Bought for $885,000 in 2019. A $2.1 million loan was taken out seven months before the sale, so the seller's equity is about $1.9 million.
What is the tax bill on your property sale going to be?
Send me the sale price and rough basis. Within one business day I'll email you the actual number and the Seller's Guide to §453. If it doesn't fit your deal, I'll tell you that plainly.
No retainer · no obligation. Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Assumptions for the tax lines, all illustrative: $150,000 of straight-line depreciation taken, so adjusted basis is $885,000 minus $150,000 = $735,000. Selling costs and any prepayment charge are left out to keep the arithmetic clean (both would trim the gain). Gain = $4,000,000 minus $735,000 = $3,265,000. Federal only, at top rates: 25% on the $150,000 of depreciation gain, 20% on the rest, plus 3.8% net investment income tax. No state tax. Your CPA runs your numbers.
How the rows were built:
- 1031, no new loan. Buy a $1.9 million replacement with the $1.9 million of equity. The $2.1 million of debt relief is not replaced, so it is boot. Recognized gain is the lesser of realized gain ($3,265,000) or boot ($2,100,000): $2,100,000.
- Structured sale. Gross profit ratio = $3,265,000 / $4,000,000 = 81.6%. The $2.1 million used to pay off the loan at closing is a payment received in year one: $2,100,000 x 81.6% = about $1,714,000 of gain. The other $1.9 million is structured: $1,900,000 x 81.6% = about $1,551,000, reported as it is paid.
- Combination. Replacement $3.0 million: $1.4 million of equity plus a $1.6 million loan. Debt not replaced: $2.1 million minus $1.6 million = $500,000, taxed in year one. Cash carved out and structured: $500,000, taxed as paid. Total boot $1.0 million; the remaining $2,265,000 stays deferred. How the boot is split across years is a call your CPA and QI make before closing.
Notice the third column. A 1031 with no new loan puts more gain in year one ($2.1 million) than the structured sale ($1.71 million), because the structured sale recovers basis in every payment. Once you decide against new debt, full deferral is gone either way.
What does the new loan cost the full 1031 path?
The full 1031 defers all $3,265,000 of gain. The price is $2.1 million of new debt. Assume a $4.0 million replacement at the same 6.4% cap, so $256,000 of net operating income, and $1.9 million of equity. Cash-on-cash = (net operating income minus debt service) / equity. Interest rates here are illustrative, not a quote.
All cash, the same building yields 6.4%. At 6.0% interest-only, the loan adds to your return. At 7.0% it subtracts: negative leverage. Amortization builds equity, but it still comes out of cash flow. Formulas in negative leverage in a 1031.
The old loan matters too. A seven-month-old loan is usually in its most expensive prepayment year. On a 5-4-3-2-1 step-down: $2.1 million x 5% = $105,000, illustrative. That charge applies on every path, the structured sale included, because the old loan is paid off at closing either way.
The market as of October 2026
- Rates went up, not down. The Fed raised its target range by a quarter point to 3.75% to 4.00% at its Sept. 16, 2026 meeting (Federal Reserve FOMC statement, Sept. 16, 2026). The 10-year Treasury was 5.24% on Oct. 1, 2026 (FRED, DGS10).
- Loan quotes. As of Oct. 1, 2026, Northmarq showed 10-year life company loans at 6.65% to 6.95% and 10-year CMBS at 7.00% to 7.50%. Both ranges are above this building's 6.4% cap.
- Cap rates. As of MSCI US Capital Trends, Feb. 2026, trailing 12-month cap rates were 7.3% for CBD office, 6.4% for industrial and 5.6% for apartments. The lower the replacement's cap rate, the bigger the negative leverage.
- Sellers looking for no-new-loan replacements. Delaware statutory trust equity raised hit $6.48 billion through August 2026, up 33% from the same period of 2025 (AltsWire, citing Mountain Dell Consulting).
Who does each path fit?
The full 1031 fits an owner who wants to stay in real estate for years, has a low basis, and can buy a replacement that earns more than its loan costs (or can add cash to borrow less).
The structured sale fits an owner who is done being a landlord and doesn't want a new loan at today's rates. It also works as a written backup if the exchange falls apart. See the structured sale as a 1031 backup.
The combination fits an owner who wants some real estate with less debt, and wants the cash taken out spread instead of taxed at once.
What are the trade-offs?
The 1031's cost is the debt, the rate and the landlord job, plus two clocks: 45 days to identify and 180 to close.
The structured sale's trade-offs: payments are locked in once set and can't be accelerated or cashed out. They depend on the assignment company and the insurer behind it. There is no published IRS ruling on this specific structure, so your CPA should review it. A commission, about 4% of the amount structured and paid by the insurer, is built into the pricing. The interest in each payment is ordinary income. And it must be written into the purchase agreement before closing; money already at a QI can't be structured later.
What should you do before you sign?
- Get the payoff letter and prepayment terms on your loan.
- Ask a lender what a replacement loan costs, next to the cap rates you see.
- Have your CPA run the year-one tax for each path.
- If you exchange, ask your QI about a structured carve-out and write the backup into the purchase agreement.
Run both paths with your own numbers in the advanced calculator, or send Hans the deal and he will lay them side by side for your CPA.
Frequently asked
Q: Does a structured installment sale defer as much tax as a 1031? A: No. A full 1031 defers all the gain; a structured sale spreads it. On the desk deal, the old loan payoff alone puts about $1.71 million of gain in year one. The structured sale's advantage is that it needs no new loan and no replacement building.
Q: Why is the loan payoff taxed in a structured sale? A: The cash used to pay off your loan at closing is part of what you receive, so it is a payment in year one, taxed at your gross profit ratio. Only debt the buyer assumes is treated differently, and commercial buyers rarely assume. See what is taxed in year one.
Q: Can I do part 1031 and part structured sale? A: Yes. You exchange into a replacement and structure some of the cash you take out, so that piece is taxed as paid. It has to be set up before closing with your QI. See the partial structured sale.
Q: Is the structured sale the same as seller financing? A: No. The buyer pays in full at closing, and an assignment company pays you on a fixed schedule funded by an annuity. You are not lending to the buyer. See structured sale vs seller financing.
What should you read or run next?
- Advanced calculator
- 1031 boot calculator
- Can you combine a 1031 and an installment sale?
- Is a 1031 exchange worth it in 2026?
- Prepayment penalty when selling for a 1031
- What is a structured installment sale?
Who wrote this?
Find out what your sale is really going to cost you in tax, and what you can do about it
No retainer. On a funded structure, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it (Hans’s share is about 2.4%; no trail). It is built into the annuity pricing, not a separate fee.
Send me the sale price and roughly what you paid. Within one business day I’ll come back with the number you’re actually looking at and whether a structured installment sale can push it down. If it can’t, I’ll say that just as plainly.
You'll also get the plain-English Seller's Guide to §453: the math, the alternatives, and the cases where it does not work.
📞 Hans Goldstein · 213-414-2808 · CA Insurance License #4273294 · Independent §453 specialist · Goldstein & Co. LLC
Hans Goldstein, a licensed insurance agent (CA Insurance License #4273294), will contact you and may discuss insurance products, including annuities.
Run your specific numbers
The calculator runs your sale through real 2026 federal + state tax brackets and shows §453 savings vs lump sum side-by-side.
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