How To Defer Capital Gains Tax On The Sale Of Highly Appreciated Assets Real estate. Businesses. Stock. And more.
If you sell an appreciated asset outright, federal capital gains tax, depreciation recapture, the 3.8% net investment income tax and state tax can claim 25–35%+ of your gain. The Deferred Sales Trust lets you sell, defer that tax under IRC §453, and put your full pre-tax proceeds to work for income and wealth transfer.
You Spent A Lifetime Building It. Then Comes The Bill.
Whether it's the business you started thirty years ago, a building you've owned since the nineties, or a concentrated stock position that quietly compounded — the moment you sell, the tax comes due all at once.
Most owners see only two options: sell and pay, or hold it until death so heirs receive a step-up in basis. The first is expensive. The second is excellent for your heirs and does nothing for you.
Capital Gains
Recapture
Income Tax
Top Federal Rate
Add state tax on top, and a lifetime of appreciation can lose a quarter to a third of its value in a single transaction.
Almost Any Highly Appreciated Asset
A 1031 exchange only works for investment real estate traded for more real estate. The Deferred Sales Trust is built on the installment sale provisions of IRC §453, which are not limited to one asset class.
Real Estate
Residential and commercial property, including long-held rentals carrying heavy depreciation recapture.
- Primary residence above the §121 exclusion
- Rental & investment property
- Commercial, office, retail, industrial
- Land, second homes, farms & ranches
- A failing or unwanted 1031 exchange
Businesses & Practices
The sale of a company you built — often the single largest taxable event of an owner's life.
- Operating businesses & professional practices
- Partnership & LLC interests
- C-corp and S-corp stock
- Franchise or dealership sales
- Owners exiting to retirement
Stock & Other Assets
Concentrated or low-basis positions and other appreciated holdings you'd rather not sell into a full tax bill.
- Publicly traded stock & securities
- Concentrated or low-basis positions
- Cryptocurrency & digital assets
- Collectibles, art & precious metals
- Other qualifying appreciated property
The Deferred Sales Trust
Not to be confused with the Delaware Statutory Trust used inside 1031 exchanges, the Deferred Sales Trust does what its name implies. It defers the capital gains tax on the sale of your asset, lets you customize your income going forward, and keeps the proceeds invested on a tax-deferred basis.
You Sell
You sell your appreciated asset to a third-party trust in exchange for a secured installment note.
Trust Closes
The trust sells to your buyer for cash. That funds the note — it is not a taxable event to you.
Proceeds Invest
Your full pre-tax proceeds are reinvested in a diversified portfolio, which you help direct as a secured creditor.
You Draw Income
You receive payments on a schedule you design. Tax is owed only as those installments are received.
The seller is a secured creditor of the trust — not a beneficiary. A separate trust is established for each household.
Sell Outright vs. 1031 Exchange vs. DST
Three ways to exit an appreciated asset — and what each one actually allows.
| Sell Outright | 1031 Exchange | Deferred Sales Trust | |
|---|---|---|---|
| Defers capital gains tax | No | Yes | Yes |
| Defers depreciation recapture | No | Yes | Yes |
| Works for a business sale | — | No | Yes |
| Works for stock or crypto | — | No | Yes |
| Lets you exit the asset class | Yes | No | Yes |
| 45 / 180-day deadline pressure | None | Strict | None |
| Must find replacement property | No | Required | Not required |
| Customize your income timing | No | No | Yes |
| Note can pass to your heirs | No | No | Yes |
The DST is frequently used to rescue a 1031 exchange that is failing, when no suitable replacement property can be identified inside the 45-day window.
A Wealth Planning Firm, Not A Product Shop
Davenport & Associates, Inc. has helped families in Connecticut and beyond since 1997. Our approach to wealth planning centers on helping clients use their assets more effectively in retirement — for income and for wealth transfer.
John F. Davenport, Esq.
President of Davenport & Associates, Inc. and a licensed estate and tax attorney in New York and Connecticut. He has led the firm since its founding in 1997, specializing in strategies to reduce estate, income and capital gains taxes.
Kent LeFevre
National DST Trustee, Guardian DST Services. Structures and administers the trust under IRC §453 — the mechanism that makes the deferral possible. A separate trust is established for each selling household.
Todd Jackson, Esq.
M&A, real estate and tax attorney with a 32-year career and more than $30 billion in completed transactions. His firm performs the legal work and provides audit defense for the life of every trust at no additional charge.
The Deferred Sales Trust has been reviewed by the IRS on multiple occasions — including in 2006, 2008 and 2019 — and found compliant when properly implemented. It is not a Monetized Installment Sale, which involves circular lending and early cash-outs the IRS has flagged.
The Capital Gains Estimator
Tell us what you're selling, what you paid, and what it's worth today. We'll estimate your capital gains exposure and tell you immediately whether you're a strong candidate for the Deferred Sales Trust.
Estimate Your Capital Gains Tax
Answer the questions below and we'll show you what you could owe — and whether you qualify to defer it.
What are you selling?
Tell us a bit more
What's it worth today?
Where should we send your estimate?
How we got there
Estimated tax you'd owe
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Schedule Your Consultation
Deferred Sales Trust FAQ
Is the Deferred Sales Trust legal?
Yes. The DST is built on the installment sale provisions of IRC §453 — long-established federal tax law. The structure has been examined by the IRS on multiple occasions (2006, 2008 and 2019) and found compliant when properly implemented, and audit defense is provided for the life of each trust.
What kinds of assets can go into a DST?
Almost any highly appreciated asset: residential and commercial real estate, land, farms and ranches, operating businesses and professional practices, partnership and LLC interests, corporate stock, publicly traded securities, cryptocurrency, and collectibles or artwork. Unlike a 1031 exchange, you are not limited to investment real estate.
How is a DST different from a 1031 exchange?
A 1031 exchange defers tax only if you roll investment real estate into more like-kind real estate within strict 45- and 180-day deadlines. A Deferred Sales Trust works for real estate, businesses, stock and other assets, lets you exit the asset class entirely, and lets you design your own income schedule — with no replacement-property requirement.
Is this the same as a Delaware Statutory Trust?
No — and this is the most common point of confusion, because both are abbreviated "DST." A Delaware Statutory Trust is a fractional real estate ownership vehicle used inside a 1031 exchange, so you remain invested in real estate. A Deferred Sales Trust is an installment sale structure under IRC §453 that lets you leave the asset entirely while deferring the tax.
Does a DST eliminate my capital gains tax?
No — and be cautious of anyone who promises that. A Deferred Sales Trust is a deferral strategy. Tax is postponed and paid over time as you receive installment payments; it is not avoided or eliminated. Deferral, used well, can be powerful — but it is not avoidance.
I'm selling my business. Does this work for that?
Yes. A business sale is often the single largest taxable event of an owner's life, and unlike real estate there is no 1031 exchange available for it. The DST is frequently used by owners exiting a company, practice, partnership interest or block of corporate stock. Timing matters — the structure must be in place before the sale closes.
Can this rescue a 1031 exchange that's about to fail?
Frequently, yes. If your 45-day identification window is running out and no suitable replacement property can be found, a DST can often be used so the exchange doesn't collapse into a fully taxable sale. Reach out as early as possible.
What size transaction makes this worth considering?
The strategy is designed for meaningful taxable events — generally $300,000+ in expected capital gains on the sale and $1,000,000+ in proceeds. The Capital Gains Estimator will tell you immediately where you land. If you fall below those thresholds, we have Tax Offset strategies that may still reduce your bill.
Know Your Number First
The worst time to learn what you owe is at the closing table — and for most of these strategies, the structure has to be in place before the sale closes. Take two minutes and run the estimate.
Start The Capital Gains Estimator