Deferred Sales Trust (IRC Section 453)
What is it?
A Deferred Sales Trust uses IRC Section 453 (installment sale rules) to defer capital gains taxes on the sale of highly appreciated assets like real estate, cryptocurrency, or business interests. Instead of selling directly (and owing immediate capital gains tax), you sell the asset to a specially structured trust, which then sells to the buyer. The trust pays you in installments over time, spreading the capital gains tax across many years.
Why is it important?
Capital gains taxes can consume 20-37% of your profit on a sale. A DST allows you to defer—and potentially reduce—this tax burden significantly. Unlike a 1031 exchange (which only works for real estate-to-real estate), a DST works for any appreciated asset: crypto, stocks, business sales, real estate, art, and more. The trust can reinvest sale proceeds into diversified assets while you receive installment payments.
Example Language
The Grantor sells $2 million in appreciated cryptocurrency (cost basis $200,000) to the Deferred Sales Trust. Instead of paying ~$360,000 in immediate capital gains tax, the trust sells the crypto and reinvests the full $2 million. The Grantor receives installment payments over 15 years, spreading the $1.8 million gain across the installment period and potentially saving over $200,000 in total taxes through lower bracket utilization.