Can I use a structured installment sale on a rental property?
Yes. A rental property is a good fit. The capital gain and the unrecaptured §1250 gain from straight-line depreciation both spread over the payment years, with the §1250 portion coming out first. Only §1245 recapture, such as appliances or cost segregation assets, is taxed in the year of sale. The structure must be in place before closing.
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.
How is the depreciation taxed when I sell a rental on installments?
Depreciation lowers your basis, which raises your gain. On a sale, that gain is split into layers, and each layer follows its own timing rule:
Residential and commercial buildings placed in service after 1986 use straight-line depreciation, so there is usually no §1250 "additional depreciation" to recapture in year one. If you did a cost segregation study, the reclassified 5, 7 and 15-year property is §1245 property, and its recapture lands in year one. See cost segregation and depreciation recapture and unrecaptured §1250 gain.
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.
Two other year-one items: cash you take at closing (times the gross profit ratio), and a mortgage paid off from closing proceeds, which counts as cash you received.
What happens to my suspended passive losses?
Rental losses you could not deduct in earlier years (suspended under the passive activity rules) are released when you dispose of your entire interest in a fully taxable sale to an unrelated buyer (§469(g)). On an installment sale, the losses are released each year in proportion to the gain recognized that year (§469(g)(3)), rather than all at once. That can work in your favor: the released losses offset income in the same years the gain arrives. Have your CPA confirm how your carryforwards will be allowed. For more on using released passive losses, see The Waterfall Strategy.
Does the 3.8% net investment income tax still apply?
Yes. Rental gain is net investment income under §1411, and so is the interest on your payments. For a high-income seller, NIIT applies to the gain whenever it is recognized; spreading does not remove it. For a moderate-income seller, spreading can keep modified AGI under the $250,000 married-filing-jointly threshold ($200,000 single) in some years, which is where the example below gets most of its NIIT difference. See net investment income tax.
What does this look like with real numbers?
Illustrative only. A married couple sells a rental in 2026 for $1,800,000. Assumptions:
- Adjusted basis $600,000 after $400,000 of straight-line depreciation; no cost segregation, no mortgage, no selling costs.
- Gain $1,200,000: $400,000 unrecaptured §1250 gain plus $800,000 long-term capital gain.
- Other taxable income $100,000 a year (about $132,200 of AGI).
- Structured version: the full $1,800,000 is paid in 10 equal annual payments of $180,000. Gross profit ratio 66.7%, so each payment carries $120,000 of gain. Interest on the payments is not modeled.
Federal figures use 2026 married-filing-jointly brackets (Rev. Proc. 2025-32), including AMT, plus NIIT; state tax extra.
How the structured years break down: years 1 to 3 recognize $120,000 of unrecaptured §1250 gain each (about $26,500 of federal tax a year); year 4 finishes the last $40,000 of §1250 gain plus $80,000 of capital gain (about $20,700); years 5 to 10 recognize $120,000 of capital gain at 15% (about $18,000 a year). The difference is about $104,500 of federal tax, before counting the interest income, which is ordinary income and also net investment income.
Should I do a 1031 exchange instead?
A 1031 defers all of the gain if you buy replacement property and keep owning real estate. A structured sale fits the owner who is done being a landlord and wants scheduled payments instead of another property. You can also combine them: exchange part, structure part, as long as both are set up before closing. Money that goes to a qualified intermediary is exchange money and cannot later be structured. See SIS vs 1031 and retiring landlord tax options.
Frequently asked
Q: Is depreciation recapture taxed all in year one? A: Only §1245 recapture is. Unrecaptured §1250 gain on the building, from straight-line depreciation, spreads with the payments and is recognized first.
Q: What if I still have a mortgage on the rental? A: If it is paid off from closing proceeds, that payoff is cash you received at closing and is taxed in year one at the gross profit ratio. Plan the structured amount around the payoff.
Q: Can I structure a rental I already closed on? A: No. The structure has to be in the purchase agreement and funded at closing.
Q: Do my suspended passive losses get used? A: Yes, generally as the gain is recognized each year under §469(g)(3). Your CPA should confirm the amounts.
What should you read or run next?
- What is taxed in the year of sale?
- How are the payments taxed?
- Can a structured sale back up a failed 1031?
- Can I structure only part of my sale?
- Retiring landlord tax options
- Cost segregation and depreciation recapture
- Unrecaptured §1250 gain
- Real estate capital gains tax calculator
- All structured installment sale questions
Who wrote this?
Find out what your property sale tax bill actually is, 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 on a property sale and whether a structured installment sale can push it down. If it can’t, I’ll tell you 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