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Structured Installment Sale: How It Works, Costs and Risks

By Hans Goldstein · Updated 2026-09-27

A structured installment sale lets the buyer pay the full price at closing while you receive the money, and are taxed on it, over a schedule you set before closing. The buyer's obligation to pay you is assigned to an assignment company, which is usually funded by a fixed annuity it owns from a highly rated life insurer (some programs use a funding agreement instead). You trade buyer risk for assignment-company risk, and flexibility for a fixed schedule, and the structure rests on the ordinary installment rules of Section 453 with no IRS ruling that specifically approves it.

Want your own numbers first? The calculator runs a cash sale, seller financing and a structured sale side by side.

What a structured installment sale is, in one sentence

A structured installment sale is an installment sale under §453 in which a third party, not the buyer, owes you the deferred payments.

The underlying rule is old and settled. If you sell property and are paid over time, you report the gain as the payments arrive (§453(a), (c)). Each principal payment is part return of basis and part gain, and that split is fixed on the day of sale as the gross profit ratio (Temp. Reg. §15a.453-1(b)). Interest on the deferred payments is ordinary income, taxed each year.

What is new is who pays. In classic seller financing you carry the buyer's note and become the bank. In a structured sale the buyer is released at closing and an assignment company takes over the obligation to pay you. The IRS explains the general installment rules in Publication 537, and you report each year's gain on Form 6252. Neither publication discusses assignment companies.

The plumbing: how the money moves

The steps have to happen in this order, and all of them are written into the purchase contract before closing.

1. The contract. The purchase agreement says part of the price is paid in cash and part in scheduled installments, and it requires the buyer to fund the assignment of the installment obligation. The schedule is written in.
2. The buyer pays in full. The buyer wires the whole price to escrow, typically with an ordinary bank loan.
3. Escrow pays the bills. Escrow pays off your loan, commissions and closing costs, and sends you any cash portion.
4. The obligation is transferred. The buyer's obligation to make the future payments is transferred to an assignment company, and you agree in writing to release the buyer. The purchase contract, not your own escrow instructions, directs that money to the assignment company. On your closing statement the structured amount should never appear as a credit to you.
5. The assignment company funds it. It usually buys a fixed annuity from a highly rated life insurer and owns it. Some programs use a funding agreement, a different kind of contract issued by a life insurer. Either way, the funding is the assignment company's asset, not yours.
6. You get paid. The assignment company pays you on the agreed schedule. The insurer may mail the checks as its paying agent, but you have no right to demand payment from the insurer or from the funding.

Timing is everything. Once sale money reaches you or an account you control, it is paid, and you cannot put it back. A structured sale has to be in the contract before closing. Most sellers who miss the option miss it because nobody mentioned it in time.

Who owes you after closing

After closing the buyer is gone. Legally this is a novation: a debt can be moved to someone else only with the creditor's consent (in California, Civil Code §1457), and you give that consent.

You are an unsecured creditor of the assignment company. You do not own the annuity or other funding, you hold no lien on it, and you hold no lien on the building. There is no buyer credit risk. There is assignment-company risk, and behind it the risk of whatever funds it.

That lack of security is not an oversight. A note "secured directly or indirectly by cash or a cash equivalent" is treated as a payment in the year of sale (Temp. Reg. §15a.453-1(b)(3)(i)), and sellers have lost installment treatment when they held a lien on the certificates of deposit funding their note (Oden v. Commissioner, 56 T.C. 569 (1971)). The tax position and the credit position pull in opposite directions, and the documents cannot give you both.

Do not count on a state guaranty association. In California, the rule that covers payees where they live is written for structured settlement annuities, which fund personal injury awards; an annuity funding a structured sale is not one (Cal. Ins. Code §1067.04(v)). Coverage, if any, follows the annuity's owner, the assignment company, and depends on where it and the insurer are based. An out-of-state pair can mean no California coverage at all. Where coverage does apply, California caps it at the lesser of 80% of the obligation or $250,000 of present value of annuity benefits (§1067.02(c)). Treat that as a risk item, not a reason to buy.

Ask the provider in writing: who owns the assignment company, what its financial statements show, whether the insurer stands behind its promise in writing, and how payees are protected if either one fails. Have your own attorney read the agreement you sign.

Is it legal? The open question

The installment method is settled law, and structured sales have been used for years. But no statute, regulation, revenue ruling or published private letter ruling specifically approves the assignment structure. The IRS has a real technical argument, and it has two sides. The documents must get past both.

Side one: a promise from someone other than the buyer counts as cash. "Payment includes receipt of an evidence of indebtedness of a person other than the person acquiring the property" (Temp. Reg. §15a.453-1(b)(3)(i)). If what you really hold on closing day is the assignment company's promise, an examiner can say you were paid in full at closing. IRS Chief Counsel, writing about monetized installment sales, put it plainly: "Debt instruments issued by a party that is not the 'acquirer' would be considered payment" (CCA 202118016).

Side two: swapping the payer changes the note. If the buyer's note exists even briefly and the assignment company then replaces the buyer, substituting a new obligor is a modification of the debt even when the contract called for it (Reg. §1.1001-3(c)(2)(i)), and it is a significant modification for recourse debt (§1.1001-3(e)(4)(i)(A)). A disposition of an installment obligation triggers the deferred gain (§453B). On the other side, when Treasury wrote those rules it said a §1001 modification "does not determine" whether an installment obligation has been disposed of under §453B; the §453B cases decide (T.D. 8675, 61 FR 32926, 32930 (1996)). Older cases held that a new obligor's assumption of an installment note on the same terms is not a disposition (Wynne v. Commissioner, 47 B.T.A. 731 (1942); Cunningham v. Commissioner, 44 T.C. 103 (1965)), while a note replaced on different terms by a different debtor was (Burrell Groves, Inc., 22 T.C. 1134 (1954), aff'd, 223 F.2d 526 (5th Cir. 1955)).

Writing the assignment into the purchase contract does not solve this. It moves the problem from one side to the other. Providers also differ on whether the seller ever holds the buyer's note at all, so the actual closing documents decide which side is the live risk.

What practitioners rely on:

• The buyer's obligation is assigned with your consent as part of the sale terms.
• You cannot accelerate, pledge, sell or cash out the payments.
• The obligation is not secured by cash or a cash equivalent, and you have no ownership, lien or claim on the annuity or other funding.
• The provider furnishes a legal opinion.

That is a reasoned position. It is not a ruling.

Why a challenge is considered unlikely, and why it is still possible

Nobody can promise that the IRS will leave a structured sale alone. But you can see which way the authorities lean.

Reasons a challenge is considered unlikely:

1. It is what Section 453 was written for. You sell, you are paid over years, and you are taxed as the money arrives. The installment method is the default for any sale with a payment after the year of sale (§453(a), (b)(1)). No cash reaches you early.
2. Courts have declined to tax an unsecured promise funded by an annuity the payer owns. In Childs, attorneys paid over time by an assignment company that owned the funding annuities were only general creditors and were not taxed up front (Childs v. Commissioner, 103 T.C. 634 (1994), aff'd, 89 F.3d 856 (11th Cir. 1996)). In Minor, annuities held in a trust for the payer's benefit and open to its creditors were not taxed to the doctor up front (Minor v. United States, 772 F.2d 1472 (9th Cir. 1985)).
3. The IRS has treated a payer-owned annuity as the payer's investment. In the ruling behind structured settlements, the payer's annuity purchase was "merely an investment" that did "not give the recipient any right in the annuity itself" (Rev. Rul. 79-220, as quoted in Western United Life Assurance Co. v. Hayden, 64 F.3d 833 (9th Cir. 1995)). A 2008 private ruling on a taxable employment settlement reached a similar result (PLR 200836019); it is not a §453 ruling and cannot be cited as precedent.
4. A new payer on the same terms has not been treated as a sale of the note. "It is only the disappearance of the installment obligation or its removal from the hands of the obligee" that triggers the tax (Wynne, 47 B.T.A. at 735; see also Cunningham).
5. A deferral agreed before you had a right to the money has held. A seller who agreed before closing to be paid later was taxed later, because the arrangement was bona fide, he had no present beneficial interest, and the holder was not his agent (Reed v. Commissioner, 723 F.2d 138 (1st Cir. 1983)). An insurance agency that swapped future commissions for the insurer's own 15-year annuity was taxed only as payments arrived (Commissioner v. Olmsted Inc. Life Agency, 304 F.2d 16 (8th Cir. 1962)).
6. The IRS's published targets are deals that hand the seller cash now. The proposed listed-transaction rule for monetized installment sales describes an intermediary and a loan to the seller (Prop. Reg. §1.6011-13(b)). The 2023 Dirty Dozen list named monetized installment sales (IR-2023-71). The IRS's deferred-legal-fees exam campaign describes fees parked with a third party that the taxpayer can reach through "a purported loan." None of them names or describes a structured sale.

Reasons it is still possible:

1. The payment rule is still there. No court has said how the third-party-obligation rule in Temp. Reg. §15a.453-1(b)(3)(i) applies to an assignment company.
2. Any security for you can sink it. Sellers lost the installment method when sale money sat in escrow at their demand (Pozzi v. Commissioner, 49 T.C. 119 (1967)) and when they held a lien on CDs funding the note (Oden). A lien on the annuity, a "secured creditor" feature, or trust or escrow language points straight at those cases.
3. The IRS is examining a close cousin. Its active deferred-legal-fees campaign looks at income directed to a third party instead of the taxpayer. The campaign centers on loans, but it shows attention to third-party deferral.
4. Agency. In Reed the IRS argued that money received by the seller's agent is received by the seller. If the assignment company looks like your agent, taking your instructions and your money, that argument returns.
5. The best authorities are analogies. Childs and Minor are compensation cases under §83. Rev. Rul. 79-220 is a personal injury ruling under §104. Wynne and Cunningham predate the 1996 debt-modification rules, and in Wynne the new payer was the sellers' own partnership. A court could distinguish every one.

The track record. As of September 2026 the book's research found no reported court case and no published IRS ruling or memo that addresses or challenges a structured installment sale of property. That is not proof that none has been examined: audits are confidential and most end without a public record. Plan as if yours could be the first case.

Constructive receipt is the second question. Income set aside for you that you could draw on at any time is taxed as received, unless your control is subject to substantial limitations (Reg. §1.451-2(a)). The structure answers with three facts: you never had the right to the cash, because the terms were fixed before closing; you do not own the funding; and you cannot speed anything up.

The worst case. If the IRS won, the structured amount would be treated as received at closing. All the deferred gain would be taxed in year one while the money stayed locked in payments you cannot accelerate, plus interest and possibly a 20% accuracy-related penalty (§6662). In the book's Case 2 (illustrative), year-one tax on the gain would move from about $117k toward the cash sale's $477k.

Protect yourself: have your own tax counsel, not anyone paid on the structure, review the documents and the provider's opinion. An opinion written for the provider is weak evidence of reasonable cause (§6664(c); Neonatology Assocs. v. Commissioner, 115 T.C. 43 (2000)). Ask your CPA about Form 8275 disclosure, which does not help for an item the Code treats as a tax shelter (§6662(d)(2)(C)). Walk away if anyone demands confidentiality or offers a fee refund if the deferral is disallowed; those features can make a deal a reportable transaction (Reg. §1.6011-4).

A worked example

Simple example. You sell a building for $1,000,000. Your adjusted basis is $400,000, so your gain is $600,000, or 60% of the price. You take $200,000 in cash at closing and structure $800,000 as ten level annual principal payments of $80,000. For simplicity: no loan payoff, no selling costs, no §1245 recapture, and the first structured payment arrives the year after closing.

Sold for cash, all $600,000 of gain lands in one year, on top of your other income. Structured, $120,000 lands in the year of sale and $48,000 in each of the next ten years. Interest on the structured payments is extra, and it is ordinary income taxed each year.

Three things change the picture in real deals:

• §1245 recapture is taxed in the year of sale no matter what (§453(i)). A cost segregation study years ago can leave a large year-one bill. See depreciation recapture on an installment sale.
• Unrecaptured §1250 gain comes out of the earliest payments first (Reg. §1.453-12), so early years carry the 25%-maximum layer.
• A loan paid off at closing from the buyer's money is a year-one payment, even though you never see the cash (Temp. Reg. §15a.453-1(b)(3)(i) excludes only debt the buyer assumes or takes subject to, up to basis).

For a fuller illustration, the book's Case 2 (illustrative composite): a retired couple sells a $2.2M fourplex, structures $1.4M over 8 years and uses stuck passive losses from rentals they keep. Year-one tax on the gain is about $117k structured versus $477k for a cash sale, and they end about $263k ahead after ten years in the book's model. Your numbers will differ.

The shapes a structured sale can take

The schedule is written into the contract before closing and cannot change afterward.

• Level. The same payment every year or month.
• Stepped. Payments change on set dates, useful when a salary is about to end.
• Rising by a fixed percentage. Payments grow by a set rate, such as 2% or 3%, fixed at closing. This is not tied to actual inflation, and the early checks are smaller than a level schedule of the same cost.
• Delayed first payment. Nothing for a few years, then payments start. The note still needs adequate stated interest or part of the principal is recharacterized as interest (§§483, 1274), and the start date cannot be moved up later.

What funds it. Usually a fixed annuity the assignment company owns; some programs use a funding agreement. Either way you are an unsecured creditor. Variable or market-linked programs exist; they are a different product, can raise securities-law questions, and should be reviewed as such. Hans does not offer them.

Size matters. If more than $5 million of installment obligations from the year's sales are outstanding at year end, §453A charges interest on the deferred tax attributable to the excess. See Section 453A.

What it costs

There is usually no separate check. In an annuity-funded structure, the insurer prices the annuity so its costs, including the producer's commission, are built into the rate you receive. It is not deducted from your payments, but it is a real cost reflected in your terms.

Hans discloses his own compensation: when an annuity-funded structure closes, the insurer pays a one-time commission of about 4% of the amount structured to the brokerage firm that places it, and his share is currently about 2.4%. There is no trail. If a structure is funded another way, his compensation is disclosed in writing before you decide. Seller financing, a cash sale or a full 1031 pays him nothing. That is a conflict of interest; weigh everything here with it in mind. Some providers also charge setup, legal or administration fees, and the assignment company may keep a spread of its own.

Simple example. On a $1,000,000 structure, a 4% one-time commission is $40,000, priced into the annuity's rate. On a $2,000,000 structure, each 0.25% of rate is about $5,000 a year of interest at the start.

Ask in writing for: the commission in dollars, the rate you would get with no commission, and any fee or spread the assignment company keeps. Compare the rate with a Treasury of the same average life and with the applicable federal rate.

California sellers: California requires withholding on sales of California real estate (FTB Form 593), including on the principal of later payments. In a structured sale the buyer is gone after closing, so settle in the contract who withholds and remits on each payment. See installment sales in California.

What you give up

• Liquidity. No cash-out, no loan against the payments, no pledge, no early payment. Pledging an installment obligation is treated as a payment (§453A(d)), and selling it is a disposition (§453B). Structure only money you will not need.
• Flexibility. You cannot renegotiate. A seller note can be restructured with a willing buyer; a structured schedule cannot.
• Rate. A structured sale usually pays less than a seller carry-back, because you are not taking the buyer's risk.
• Purchasing power. Fixed payments lose ground to inflation.
• Future tax rates. Each payment is taxed at the rates in force when it arrives.
• Side effects. Spreading gain keeps income higher for years, which can affect Medicare premiums, set from income two years earlier, in every payment year, though it can also keep each year under a tier a lump sale would cross.

What it is not

• Not a monetized installment sale. There, an intermediary buys your property for a note and a lender "loans" you most of the cash on day one. Treasury has proposed making those listed transactions (Prop. Reg. §1.6011-13, still proposed as of September 2026). If you get the cash on day one, you did not defer anything. See monetized installment sale.
• Not a Deferred Sales Trust. There, you sell to a trust for its note, the trust resells and invests, and your payments depend on its investments and a trustee you do not control. See deferred sales trust vs installment sale.
• Not a 1031 exchange, though it can carry the boot in one. See structuring 1031 boot.

Structured sale vs seller financing

Both are §453 installment sales and produce the same gross profit ratio and the same layering of gain. The difference is which risks you hold.

The full comparison, including a cash sale, is in seller financing vs structured sale. The tax mechanics of carrying your own note are in seller financing taxes, and the general rules are in the installment sale guide.

What happens if you die

The payments continue to your named beneficiary. The tax continues too. The unpaid gain is income in respect of a decedent: there is no step-up, and your heirs report the gain as each payment arrives (§§691(a)(4), 1014(c)), with a possible §691(c) deduction for estate tax paid. The payments cannot be commuted to pay estate tax.

Property held until death gets a stepped-up basis (§1014), and in community property states both halves step up at the first spouse's death (§1014(b)(6)). A structured sale gives that up. For an older seller whose plan is to hold, holding may win. See what happens to an installment note when the seller dies.

Bottom line

A structured installment sale lets the buyer pay in full while you receive, and are taxed on, the money on a schedule set before closing, if the structure holds. It removes buyer default and early payoff, and replaces them with an unsecured claim on an assignment company and an open legal question that no ruling has settled. It must be in the contract before closing, it cannot be undone, and it carries a commission built into the rate. Run the numbers in the calculator, read the fuller treatment in the book, and have your own CPA and tax attorney review the actual documents.

Questions to ask your CPA

• Given my recapture, loan payoff and selling costs, how much gain lands in the year of sale no matter what?
• Which side of the open question do these closing documents put me on: a third-party obligation at closing, or a later substitution of the obligor?
• Do the documents give me any security, lien, trust or escrow right that could make the obligation a payment?
• Should we disclose the position on Form 8275, and does any fee or confidentiality term make this a reportable transaction?
• Does the note carry adequate stated interest for its term, and will my obligations exceed $5 million at year end under §453A?
• How does my state treat each payment, including withholding and a later move?
• If I die in year three, what do my heirs owe, and would holding the property until death be better?

Educational only, not tax, legal or investment advice. Examples are illustrative. Have your CPA or tax attorney review your facts before you act. Hans Goldstein is a licensed insurance agent (CA Insurance License #4273294) and is not a CPA or attorney. He is paid a commission only if a structured installment sale is funded; seller financing pays him nothing. Disclosures.