The Tax Code’s Hidden Gem: Installment Sales for Wealth Management and Estate Planning

An installment sale occurs when the owner of personal or real property disposes of that property and receives at least one payment from the property disposition after the taxable year in which the disposal of the property transpired. Income is not recognized in these sales until payments are received by the property owner. There are a number of beneficial reasons to engage in an installment sale, such as the provision of retirement income, gaining a steady income stream, converting illiquid assets into continuous monthly payments, and/or eliminating the risks and burdens of owning property.

Wealth management firms, financial institutions, and banks would very likely qualify as an unrelated third party for property owners disposing of property through installment sales. This provides property owners with a critical component of such a sale — a low-risk, trusted, experienced, and unrelated third-party buyer. Though these characteristics should make such institutions sought-after parties for an installment sale, their role would rest on a fact-specific analysis and a clear determination of the seller, property, and context of each sale.  

See Justin P. Rostoff, The Tax Code’s Hidden Gem: Installment Sales for Wealth Management and Estate Planning, Probate and Property Magazine, March 2018.