The Numbers · Article

The math: what a §453 structured sale actually does to a $4M deal.

No hand-waving. Here's the same $4M sale run two ways — straight cash sale versus a Structured Installment Sale — using real 2026 California + federal brackets. This is the page to send the seller who thinks in spreadsheets, or the CPA on the call.

The setup

A $4,000,000 sale with a $600,000 basis.

Seller bought a commercial property years ago for $600K. It's now worth $4M. The taxable gain is $3,400,000. Assume a high-income California seller: 20% federal cap gains + 3.8% NIIT + 13.3% CA = roughly a 37% blended rate on the gain if it all lands in one year. (Depreciation recapture at 25% would make the cash-sale side worse; we keep it simple here.)

Option A — Straight cash sale (all gain in one year)

  • Gain recognized in Year 1: $3,400,000
  • Blended tax at ~37%: −$1,258,000
  • After-tax proceeds: ~$2,742,000 (plus the $600K basis returned = ~$3.34M net of the $4M)

Option B — Structured Installment Sale (gain spread over 10 years)

  • Gain recognized: ~$340,000 per year instead of $3.4M at once
  • Each year's slice is taxed in lower brackets — much of it at 15% federal instead of 20% + full NIIT, and CA is applied to a far smaller annual figure
  • Effective blended rate typically drops 8–11 points — call it ~27% instead of ~37%
  • Tax on the gain: roughly −$920,000 spread over the schedule
  • Tax saved vs. the cash sale: ~$300,000–$340,000 — plus the unpaid balance keeps earning inside the contract instead of leaving as an IRS check on day one
Why the rate drops

Bracket arbitrage + time value.

Two things are working at once. First, bracket arbitrage: a $3.4M spike shoves the entire gain into the top capital-gains bracket and triggers full NIIT; slicing it into ~$340K annual pieces keeps most of each year in lower bands. Second, time value: the tax you don't pay in Year 1 stays invested and compounding inside a guaranteed contract, so a dollar of deferred tax is worth less than a dollar paid today.

The seller can also tune the schedule — front-load income, back-load it into retirement years when other income (and their bracket) is lower, or match it to a spouse's retirement. That flexibility is where the biggest savings often hide.

The one-line version

Same $4M. Same buyer. ~$300K+ more stays with the seller.

That ~$300K swing is frequently larger than the entire bid-ask gap that was killing the deal — which is exactly why this closes stalled sales.

Run the numbers on a deal — free →Refer a client to Hans

Illustrative only, not tax advice. Actual results depend on the seller's basis, income, filing status, recapture, and the schedule chosen; every case is run on the seller's real numbers and reviewed with their CPA. Prefer the human side of this? Read why sellers freeze at the closing table.