Can I use a structured installment sale to sell a business?

Hans Goldstein structures installment sales for sellers and works alongside their CPAs. Email hans@goldsteinco.net or call 213-340-2018.

Which parts of a business sale can spread, and which cannot?

A business sale is usually several sales at once. In an asset sale, buyer and seller allocate the price across asset classes under IRC §1060 and both report that allocation on Form 8594. Each class gets its own tax treatment, and the installment method applies only to the classes that qualify.

The allocation matters as much as the price. A dollar moved from goodwill to a non-compete changes from spreadable capital gain to ordinary income taxed when paid. Negotiate the §1060 allocation with your CPA before the purchase agreement is final, not after.

If you sell an interest in a partnership or LLC taxed as a partnership, the part of the price attributable to receivables, inventory and recapture is treated separately under §751. Your CPA will split that out.

How is an earnout different from a structured installment sale?

An earnout pays you more if the business hits targets after closing. You carry the risk that it never pays, and the buyer controls the business that determines the number. Tax follows the contingent payment rules, with basis spread under the regulation's formulas.

A structured installment sale is the opposite. The amount is fixed at closing. The buyer pays it in cash to an assignment company, which assumes the obligation and buys a fixed annuity from a highly rated life insurer (A or better by A.M. Best or equivalent) to fund your payments. The payment schedule is set in the contract, and the payments depend on the claims-paying ability of the assignment company and the insurer behind it. You are not exposed to how the business performs after you leave. A deal can have both: a fixed cash price, part of which is structured, plus a separate earnout.

What does this look like with real numbers?

Illustrative only. A married couple sells the assets of their business for $4,000,000 in 2026. Assumptions:

• Inventory: $300,000, sold at cost, so no gain.
• Equipment: $400,000, adjusted basis $50,000, so $350,000 of §1245 recapture.
• Goodwill: $3,300,000, zero basis, all long-term capital gain.
• $500,000 is paid at closing (covering the inventory and $200,000 of the equipment price). The remaining $3,500,000 is structured: $200,000 of equipment price plus all $3,300,000 of goodwill, paid over 10 years starting the year after closing.
• Other taxable income: $100,000 a year. The owners materially participated, so the 3.8% net investment income tax is assumed not to apply to the sale gain (§1411(c)); the interest on the payments is investment income and is not modeled here.

Federal figures use 2026 married-filing-jointly brackets (Rev. Proc. 2025-32), including AMT; state tax extra.

The recapture tax does not move. It is due in the year of sale whether the equipment price is paid at closing or later, because §453(i) adds the recapture to the year-one return and to basis for the gross profit ratio. The goodwill is where the structure works: $330,000 a year stays in the 15% bracket instead of $3.3 million landing mostly at 20%. In this example the difference is roughly $190,000 of federal tax, before interest income and before the time value of paying later. Have your CPA run your own allocation.

When do I have to decide?

Before closing, and in practice before the purchase agreement is final. The structured amount and the assignment language go into the purchase agreement or an addendum, and the buyer signs it. Once the buyer has paid you cash, the installment method is gone for that money. Raise it at the letter of intent stage.

Frequently asked

Q: Can I structure the sale of my S corporation or C corporation stock? A: Yes, if the stock is not publicly traded. A stock sale avoids asset-level recapture on your return, but buyers often prefer asset deals. See asset sale vs stock sale.

Q: Can my non-compete payment be structured? A: No. A covenant not to compete is ordinary income for a promise, not proceeds from selling property, so it falls outside the installment method.

Q: Does the buyer take on any risk? A: No. The buyer pays the full price at closing and the assignment company assumes the payment obligation. The buyer's cost is the same as an all-cash purchase.

Q: What if my buyer wants to pay me over time with a note? A: That is seller financing: you carry the buyer's credit risk. A structured sale replaces the buyer's note with payments from an assignment company funded by a fixed annuity.

What should you read or run next?

• What is taxed in the year of sale?
• Can I structure only part of my sale?
• Structured installment sale vs seller financing
• Selling a dental, medical or professional practice
• For business owners
• Asset sale vs stock sale
• C corporation sale tax
• Installment sale calculator
• All structured installment sale questions

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