§453 · Should I Just Pay The Capital Gains Tax

Should I just pay the capital gains tax instead?

Often, yes. If the gain is small, you need the cash, or you are already in low brackets, paying the tax at once is simpler and keeps you free to invest. On a large gain, a lump sum pushes most of it into the 20% bracket plus the 3.8% NIIT; spreading it can keep more at 15%. In the example below, that difference is about $136,000 federal.

By Hans Goldstein, IRC §453 structured installment sale specialist · Updated September 30, 2026

§453 Mechanic: How the Money Flows

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.

When does paying the tax now make sense?

A structured installment sale only defers tax; it does not reduce the gain. Paying now is the better answer when:

The gain is small. If the whole gain already fits in the 0% or 15% bracket in one year, spreading saves little or nothing.
You need the money. A structure locks the schedule. You cannot speed it up, borrow against it or cash it out (Treas. Reg. §1.451-2(a) constructive receipt is why).
Your brackets will be higher later. If you expect more income in later years, or tax rates rise, deferral can cost you.
You want to invest freely. After-tax cash can go into anything. Structured payments earn the fixed rate the insurer set at closing, and nothing more.
Most of the gain is recapture. §1245 recapture is taxed in the year of sale in full under §453(i), structure or not.
The amount is under the insurer's minimum for a structure.

When does spreading the gain help?

Spreading pays off when a single year would push a large gain through the top brackets:

The 2026 married-filing-jointly 20% capital gain rate starts at $613,700 of taxable income. Everything above that line costs an extra 5 points.
The 3.8% net investment income tax (IRC §1411) applies above $250,000 of modified AGI. Spreading can keep a moderate-income seller under that line in some years. A high-income seller pays it on the gain regardless.
State tax: California has no capital gain rate. Gain is taxed as ordinary income, so a lump sum climbs through every bracket.

Before you read further

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.

What does it look like with real numbers?

Illustrative facts: a married couple, $150,000 of other taxable income each year, a $2,000,000 long-term capital gain, no depreciation recapture. Federal tax uses 2026 married-filing-jointly brackets (Rev. Proc. 2025-32) for every year, as a stand-in. NIIT is figured with modified AGI equal to taxable income, a simplification. State tax is extra and shown separately.

	Lump sum, one year	$200,000 a year for 10 years
Gain at 15%	$463,700	$200,000 each year (all of it)
Gain at 20%	$1,536,300	$0
Federal income tax on the gain (incl. AMT)	about $401,800	about $30,000 a year, $300,000 total
NIIT (3.8%)	about $72,200	about $3,800 a year, $38,000 total
Federal total	about $474,000	about $338,000
California, if you live there (extra)	about $230,800	about $18,600 a year, $186,000 total
Federal plus California	about $704,800	about $524,000

Federal savings from spreading: about $136,000. With California, about $181,000. The lump-sum federal figure includes about $24,900 of alternative minimum tax that the one-year spike triggers.

What the table leaves out:

Interest. The structured payments include interest, which is ordinary income and also net investment income. It is not modeled here. It adds tax, and it also adds money you would not otherwise have.
Timing. The lump-sum tax is due next April. The spread tax is paid over 10 years, out of payments that arrive over 10 years.
Future law. Brackets are adjusted for inflation each year and Congress can change rates. The table holds 2026 law constant.

Run your own figures in the capital gains exit calculator.

What are you giving up by spreading?

Be honest about the trade:

Liquidity. The structured amount is locked. If you might need a large sum in year three, keep that money out of the structure. You can structure only part of the sale.
Inflation. Fixed payments buy less each year. A step-up schedule can offset some of that, but it is chosen before closing and then fixed.
Investment upside. If you would have invested the after-tax cash and earned more than the structure's rate, paying now can come out ahead even after the extra tax.
Credit exposure. Payments depend on the claims-paying ability of the assignment company and the insurer behind it.

Many sellers split the difference: take enough cash at closing to cover near-term needs, and structure the rest. Have your CPA run both versions on your actual return before you decide.

Frequently asked

Q: Does a structured sale reduce my total tax? A: It can reduce the total by keeping each year's gain in lower brackets, but it does not exclude any gain. It defers tax; it does not avoid it.

Q: Is the 3.8% NIIT avoidable if I spread the gain? A: Only if your modified AGI stays under $250,000 (married filing jointly) in the payment years. A high-income seller pays it on the gain either way, and interest on the payments counts too.

Q: Can I decide after closing which option to use? A: No. A structured installment sale must be set up before closing. Once the buyer's cash reaches you, the choice is made.

Q: What if I need some cash now? A: Take it at closing. Only the part you structure is locked. Cash at closing carries the same gross profit ratio as every later payment.

What should you read or run next?

Who wrote this?

About the author

Hans Goldstein works with sellers on IRC §453 installment sales. Tax and exit-planning analysis: Hans Goldstein: Tax & Exit Planning. Annuity placement for structured installment sales: Goldstein & Co. LLC dba Goldstein Insurance Services, CA ins. lic. #4273294. Hans is not a CPA or attorney, and this page is education, not tax or legal advice; have your CPA review your facts. A commission is paid only if a structured installment sale is funded.

Last updated September 30, 2026.

Talk to Hans: hans@goldsteinco.net · 213-340-2018

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