Most SIS articles online sell the upside and skip the disqualifiers. In reality, some sales simply can't be structured as an SIS, and a few sales that can be structured have a hidden cost (the §453A interest charge) that bites at $5 million and up. Below is the plain-English list of what doesn't work, and why.
If your sale falls into one of these buckets, an SIS won't fit (or won't fit the way you'd hope). That doesn't mean you have no options. It means the answer is something other than an SIS.
The seven hard disqualifiers: publicly-traded stock, inventory, dealer property, the depreciation-recapture piece of any sale, related-party sales of depreciable property, sales already structured as a §1031 exchange that fell through, and any sale where you've already received the cash.
The one soft disqualifier worth knowing: structured installments over $5 million carry an extra annual interest charge under §453A, but that's a math problem, not a deal-killer. Two clean mitigations exist (cash carve-out, tranching) and the advanced calculator runs the math on the deferred portion automatically. The section below summarizes it; the homepage §453A section goes deeper.
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.
Each of these is written directly into the Internal Revenue Code. There's no workaround and no clever structuring around them. The IRS won't let installment-method treatment apply.
Sell Apple shares, Tesla, an ETF, or a bond on the open market, and the entire capital gain is taxed in the year of the trade. You can't spread it.
Statute: IRC §453(k)(2), "the installment method shall not apply to any sale of stock or securities which are traded on an established securities market."
If you sell a business and part of the price tag is for inventory on the shelf, the inventory portion is taxed in year one as ordinary income. Only the non-inventory portion of a business sale (goodwill, equipment over basis, the building) can spread.
Statute: IRC §453(b)(2)(B).
If you're in the business of selling the kind of asset you just sold (a real-estate flipper selling a flip, a car dealer selling a car, a wholesaler), that's "dealer property" and the installment method is off the table. The IRS treats it as ordinary business income, all in year one.
Statute: IRC §453(b)(2)(A) and §453(l). One narrow exception: certain dealer dispositions of residential lots and timeshares can opt back in under §453(l)(2), but they pick up the §453(l)(3) interest charge as a tradeoff.
If you've taken depreciation on the asset (a rental, a building, equipment), the IRS claws that depreciation back as ordinary income in the year of sale, even if you don't receive any cash that year. Only the gain above the recapture amount can spread.
Example: you sell a rental at a $1M gain. $300K of that gain is depreciation recapture (§1250 unrecaptured). $300K gets taxed in year one regardless of how the SIS is structured. The remaining $700K of true capital gain can spread.
Statute: IRC §453(i).
Selling depreciable property to your own kid, your spouse, a family LLC, or any "related person" under §267(b), and the installment method is denied. The whole gain hits in year one.
Statute: IRC §453(g). The related-party rule is broader than people expect: controlled corporations, trusts where you're a beneficiary, your siblings, your parents. A tax attorney will run the §267(b) check if there's any family element to the deal.
Once the buyer's check is in your bank account, the installment method is gone. The IRS calls this "constructive receipt." You can't take the cash and then try to fund an annuity yourself to mimic an SIS. The structure has to be set up at closing, with the buyer's payment routed directly to the assignment company, never touching your hands.
Mechanism: §453 requires the seller to receive "a payment in a taxable year following the year of disposition." If you got paid in year one, there's no payment in a later year to defer; it's all year-one gain.
If you started a 1031 exchange and missed your 45-day identification or 180-day closing window, the boot or the failed-exchange proceeds are taxable in the original year of sale. You can't reach back and reclassify the deal as an installment sale after the fact. (You can structure an SIS upfront as the planned exit; you just can't use it as a rescue mechanism for a 1031 that fell apart.)
IRC §453A(c) imposes a yearly interest charge on the deferred federal tax for any installment obligation outstanding at year-end above a $5 million threshold. The rate is the IRS underpayment rate, applied to the deferred tax (not the deferred gain). Below $5M of structured obligation, §453A doesn't apply at all.
Two clean mitigations are how this actually gets handled in practice:
Above $5M without either mitigation, §453A is just a cost line in the model. The SIS typically still wins by a wide margin against an outright cash sale, but the math should be run. Our advanced calculator computes the §453A interest charge automatically and shows whether the SIS still pencils after the charge.
§453A doesn't apply to personal-use property sold by an individual (primary residence gain beyond the §121 exclusion is one example), property used in farming, or qualifying sales of residential lots and timeshares. Most business and investment-property sales above $5M are subject to it.
For the full §453A treatment, see the homepage "What about the §453A interest charge?" section and the §453: why it's legal page.
▸ Things that "work" but probably shouldn't be SIS'dThe SIS adds friction: one extra contract, one extra party, a slightly slower close, and the carrier earns a small spread on the annuity. For a $200K gain, the setup overhead probably eats the tax savings. As a rough rule of thumb: gains under ~$500K usually don't pencil; gains $1M+ usually do; in between, run the numbers.
An SIS turns a lump sum into a payment schedule. If you needed $5M cash at closing to pay off a personal note, fund another acquisition, or buy a house, the SIS is the wrong tool. The structure is designed for sellers who don't need the principal back any time soon. (A deferred SIS, where payments don't start for several years, exists, but it's still a payment stream, not a liquidity event.)
Once the SIS annuity is issued, the payment schedule is fixed. You can't accelerate it to access cash early, you can't change the dates, you can't pull principal out. If your life changes (divorce, illness, opportunity), the SIS keeps paying on its schedule and that's it. (You designate a beneficiary so it doesn't disappear at death, but you can't unwind it for liquidity.)
See also: CRT vs SIS · SIS vs 1031 · SIS is NOT a deferred sales trust · Moving out of CA: which assets escape CA tax through SIS
Send the basic facts: what's being sold, who the buyer is, the gain, and the timeline. Hans will tell you in writing whether an SIS works, where the §453A interest charge might bite, and what the alternatives are if it doesn't fit. No pitch, no pressure, just an honest read on the deal.
Talk to Hans: 213-414-2808
A plain-English guide for sellers on how a structured installment sale defers the tax when you sell a business, practice, or property. It covers the math, the alternatives, and how to tell if your deal fits.
Leave your details and the PDF downloads right away. Within one business day Hans will email a preliminary read on which structure fits your deal. 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.
📞 Hans Goldstein · 213-414-2808 · 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.
