Selling a highly appreciated asset? Defer the capital gains tax and convert your proceeds into a flexible, structured income stream.
A Deferred Sales Trust (DST) is a tax-deferral strategy designed to help taxpayers defer capital gains taxes on the sale of appreciated assets — including real estate, businesses, or highly concentrated stock positions.
It operates under the framework of IRC §453, which governs installment sales. In essence, the seller transfers the appreciated asset to a specially structured trust before the sale. The trust then sells the asset to the end buyer. Because the seller receives a promissory note — an installment obligation — rather than immediate sale proceeds, the gain is recognized gradually, only as payments are received over time.
You are not taxed on gains you have not yet received. By spreading recognition across years, a DST can reduce bracket impact, preserve more capital to reinvest, and give you control over the timing of your tax liability.
The client sells the asset to an independent DST trustee in exchange for a secured installment contract.
The third-party trust then sells the asset on to the end buyer at the negotiated price.
Sale proceeds flow into the trust in exchange for the assets — without triggering immediate recognition to the seller.
The trust pays the seller over time per the note terms; distributions are taxed as ordinary income while the original balance remains untouched.
A DST can defer capital gains on the sale of many types of highly appreciated assets. Sellers holding any of the following could benefit:
Consider these representative scenarios:
A landlord sells a $2 million rental property carrying $1 million of gain. Using a DST, they defer roughly $250,000+ in taxes and reinvest the full $2 million into conservative income assets — generating passive cash flow.
An owner sells a company for $5 million. Instead of paying $1.2 million in tax upfront, the proceeds enter a DST and the owner receives $500,000 per year for ten years — spreading recognition and reducing bracket impact.
An investor with $3 million in long-held stock transfers it to a DST before liquidation. The trust sells the shares, reinvests proceeds, and pays the seller gradually — deferring tax and mitigating concentration risk.
For real estate investors who cannot find a suitable 1031 replacement property, a DST can serve as a "fall-back" option — preserving tax deferral without the 45-/180-day deadlines.
