What are the related-party installment sale rules?
Two rules apply. Under IRC §453(e), if you sell to a related person who resells within two years (no time limit for marketable securities), their resale proceeds are treated as received by you. Under §453(g), depreciable property sold to a controlled entity cannot use the installment method unless tax avoidance was not a principal purpose.
Buyer cash → Assignment Co. → fixed annuity → You, on schedule
Hans Goldstein structures installment sales for sellers and works alongside their CPAs. Email hans@goldsteinco.net or call 213-340-2018.
Who is a related person?
For §453(e), IRC §453(f)(1) defines a related person as anyone whose stock would be attributed to you under §318(a) (other than §318(a)(4), options), or anyone in a §267(b) relationship with you. In practice:
- Family: your spouse, children, grandchildren and parents (§318). §267(b) adds siblings and ancestors more broadly. In-laws are not on either list.
- Entities: corporations, partnerships, trusts and estates connected to you by the ownership and beneficiary tests in §318 and §267(b), including a corporation more than 50% owned, directly or indirectly, by you.
- Fiduciary relationships: trusts with a common grantor, a grantor and fiduciary, and similar §267(b) pairs.
§453(g) uses a different, narrower list: related persons under §1239(b), which centers on you and an entity you control (more than 50% by value, after attribution), you and a trust in which you or your spouse is a beneficiary (other than a remote contingent interest), and an executor and a beneficiary of the same estate (other than a pecuniary bequest).
How does the two-year resale rule work?
What is the tax bill on your 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.
The first disposition is your installment sale to the related buyer. If the related buyer makes a second disposition before you have been paid in full, the amount the buyer realizes is treated as received by you in the year of the resale (§453(e)(1)). The amount is capped: it is the lesser of the amount realized on the resale or your total contract price, minus payments you have already received or been treated as receiving (§453(e)(3)). Later payments are then not taxed again until they exceed the amount accelerated.
The statute of limitations on the acceleration stays open until two years after you notify the IRS of the second disposition (§453(e)(8)), so the risk does not quietly expire.
Illustrative numbers. You sell land to your daughter for $2,000,000 with a $500,000 down payment, basis $800,000, gross profit ratio 60%. Before any further principal is paid, and fourteen months after your sale, she resells for $2,200,000. You are treated as receiving the lesser of $2,200,000 or the $2,000,000 contract price, minus the $500,000 already received: $1,500,000, carrying $900,000 of gain at 60%, all in the year of her resale. Her later payments to you are not taxed again until they exceed that $1,500,000.
How do these rules interact with a structured installment sale?
In a structured installment sale, the buyer pays the full price at closing, part to you and part to an assignment company that takes over the obligation to make your deferred payments. The structure does not change who the buyer is.
- §453(e) turns on the related buyer reselling the property. The buyer having paid cash at closing does not switch the rule off. If a related buyer resells within two years and no exception applies, the deferral on your remaining payments is at risk, even though the assignment company keeps paying you on schedule.
- §453(g) turns on the property type and the buyer. Selling a depreciable building, equipment or a business's depreciable assets to an entity you control can deny the installment method outright. Structuring the payments through an assignment company does not cure that.
- An unrelated arm's-length buyer removes both issues. That is the typical structured sale.
Whether a structured sale to a related buyer works is a fact question for the seller's CPA or tax attorney before anything is signed: who the buyer is under §§318, 267(b) and 1239(b), what the buyer intends to do with the property, and whether a §453(e)(7) or §453(g)(2) showing is realistic. The specific assignment-company structure has no published IRS ruling, and a related-party sale adds a second layer of review.
What should a CPA check first?
- Map the buyer against §318(a), §267(b) and §1239(b), including entity ownership after attribution.
- Identify the property: depreciable property (§453(g)) or marketable securities (no time limit under §453(e)). Publicly traded stock and securities cannot use the installment method at all (§453(k)(2)).
- Ask about the buyer's resale plans and any hedging that could suspend the 2-year clock.
- Document the non-tax purpose of the sale if relying on §453(e)(7) or §453(g)(2).
Frequently asked
Q: Can I do an installment sale to my child? A: Yes, the installment method is available, but if your child resells within two years your deferred gain can be accelerated under §453(e). Depreciable property sold to an entity you control faces §453(g) instead.
Q: Are siblings related persons? A: Yes, for §453(e). §453(f)(1) incorporates §267(b), which treats brothers and sisters as family members.
Q: Does the two-year rule apply if the buyer paid cash at closing? A: The rule turns on the related buyer's resale, not on how the buyer paid. Have your CPA analyze any structured sale to a related buyer before closing.
Q: Does the rule survive death? A: No. §453(e)(6) excludes transfers after the death of the seller or the related buyer from being treated as second dispositions.
What should you read or run next?
- Is a structured installment sale legal?
- What happens to the payments when I die?
- Structured installment sale vs seller financing
- Can I use a structured installment sale to sell a business?
- IRC Section 453 and the §453 CPA guide
- Gross profit percentage calculator
- All structured installment sale questions
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 · 213-340-2018 · 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.
Run the calculator → 213-340-2018