1031 Exchange vs Structured Installment Sale: 2026 Numbers

Short answerA 1031 exchange defers the whole gain, but only if you buy more real estate on a strict clock and keep owning it. A structured installment sale lets you leave real estate entirely: the buyer pays cash at closing, and the gain is taxed as fixed payments arrive. On the $3,000,000 rental below, cash costs $528,392 in tax; a 15-year structured sale costs $253,485.

The core difference

Both tools stop the whole gain from landing on one tax return. They do it in opposite ways. The 1031 keeps your money in real estate and postpones the tax. The structured installment sale takes your money out of real estate and spreads the tax over the payment years.

So the first question is not which saves more tax. It is whether you want to own another property. If yes, start with the 1031. If no, a 1031 is not available to you at all, and the real comparison is a cash sale against a spread.

	1031 exchange	Structured installment sale
What you must do	Buy like-kind real estate worth at least what you sold, and replace the debt	Nothing. You buy no property
When the gain is taxed	Postponed until you sell the replacement for cash, or erased by the step-up at death	As each scheduled payment arrives
Deadlines	45 days to identify, 180 days to close (IRC 1031(a)(3))	Set up before your closing; no deadline after
Who pays you	No one. You own a new property	An assignment company, funded by a life insurer
After closing	You are still a landlord or owner	You receive fixed payments; no tenants, no note to collect
Flexibility later	Sell, refinance or exchange again	Fixed once set; cannot be sped up, sold or pledged
Main risk	Missing a deadline, overpaying for a replacement, real estate risk	Insurer strength and a fixed rate locked at funding

Worked example: one $3,000,000 rental, four ways

Assumptions (illustration only): a married couple filing jointly in Texas, which has no state income tax. They sell a rental building for $3,000,000 with an adjusted basis of $900,000, so the gain is $2,100,000. Of that, $600,000 is unrecaptured Section 1250 gain from past depreciation, taxed at up to 25%. No mortgage, selling costs ignored.

They have $80,000 of other ordinary income every year. The structured payments start in 2027. On the 15-year schedule, $200,000 of principal arrives each year; 70% of it ($140,000) is gain, because the gain is 70% of the price. The 25% gain is reported first (Treas. Reg. 1.453-12). The interest element is ordinary income and is left out.

Path	Tax on the gain	When it is paid
Cash sale, all in 2026	$528,392	2026 return
1031 exchange into a $3,000,000 property	$0 now; $2,100,000 of gain carried into the new property	When you sell that property for cash, if ever
Structured installment sale, 10 years	$304,829 total	$43,348 a year for two years, $40,648 in year three, then $25,355
Structured installment sale, 15 years	$253,485 total	$25,500 a year for four years, $18,135 in year five, then $13,335, 2027 to 2041

Tax figures are the added federal income tax (including alternative minimum tax) and 3.8% net investment income tax on the gain, from the Big Sale Tax engine, with 2026 federal law and brackets held flat for every year (IRS Rev. Proc. 2025-32). Future brackets are indexed for inflation, so later years are shown conservatively.

Why the spread costs less: $140,000 of gain a year keeps this couple under the $250,000 threshold for the 3.8% surtax and inside the lower brackets. The cash sale pushes $2,100,000 through the top 20% rate and adds $73,340 of surtax. The 10-year schedule is cheaper than cash but costs more than 15 years, because $210,000 a year crosses the surtax line.

What the 1031 column does not show

The $0 is real, but the gain does not go away. Your old basis carries into the new property (IRC 1031(d)), so the $2,100,000 waits inside it. Each year of new depreciation adds to the eventual 25% bucket. The bill arrives when you sell for cash, unless you hold until death and your heirs get a stepped-up basis under IRC 1014.

You also keep the job. Tenants, repairs, loans and the market risk of one building are still yours. For many owners over 60, that, not the tax, is why they are selling. See what happens when the exchanged property is finally sold on 1031 now, structured installment sale on the exit.

What the structured column does not show

The payments are fixed once set. You cannot speed them up, sell them or borrow against them, because a pledge counts as a payment (IRC 453A(d)). They depend on the strength of the insurer behind the assignment company. The rate is locked on funding day, and the agent's commission is built into it.

It must be written into the purchase agreement before closing. Once sale money reaches you or your 1031 intermediary, the option is gone. There is no revenue ruling written for this structure; it rests on the ordinary installment rules and the constructive receipt rules (Treas. Reg. 1.451-2). See two kinds of installment sales for how it differs from carrying a note yourself.

Or use both: a 1031 with a structured sale on the boot

Most sellers think it is one or the other. It is not. Say the same couple finds a $2,400,000 replacement and wants $600,000 out. In a straight 1031, that $600,000 is boot and is taxed now, up to the gain (IRC 1031(b)). Paid instead as a structured installment sale set up before closing, the same boot is taxed as it arrives.

The $600,000 you keep out of the exchange	Tax on the boot gain	When it is paid
Taken as cash at closing	$154,210	2026 return
Taken as a 10-year structured installment sale	$79,000 total	$7,900 a year, 2027 to 2036

Assumes the recognized boot gain is all unrecaptured Section 1250 gain, the conservative case, with the same $80,000 of other income. Same engine and 2026 law as above. The structured part is paid at closing straight to the assignment company, never through the intermediary.

The mechanics of boot and the netting rules are on the 1031 boot analysis. The seller-carried version, where the buyer owes you, is on 1031 exchange vs installment sale.

Why the combination rarely gets modeled

The qualified intermediary is paid on the exchange. The broker on the replacement purchase is paid when you buy. The lender is paid when you borrow. None of them is paid to show you the version where you buy less property. That does not make them wrong; it means the combined version is often never run.

The usual objection is that sellers want a clean deal. Here the buyer still pays cash, the closing looks normal and the 1031 works as usual. The difference is one extra contract. Hans models all of these side by side; he is also paid a commission if you implement the structured part through his separate insurance business.

How to choose

You want to keep owning real estate: 1031 exchange, and consider a structured sale on any cash you keep.
You are done owning property: compare a cash sale with a structured sale and a seller-carried note. See selling without buying another property.
You are in escrow and the replacement search is failing: act before closing. See missed the 45-day deadline.
You plan to hold until death: the step-up can beat both. See step-up at death.

The 1031 and installment sale series

Frequently asked questions

Is a 1031 exchange better than a structured installment sale?

Only if you want to own more real estate. A 1031 defers the whole gain but requires buying like-kind property within 180 days and keeping it. A structured installment sale requires buying nothing and spreads the tax over the payment years. In the $3,000,000 example, the 15-year spread cost $253,485 against $528,392 for cash.

Can I do a 1031 exchange and a structured installment sale on the same sale?

Yes. Exchange the part you reinvest and take the part you keep, the boot, as a structured installment sale. It has to be written into the purchase agreement before closing, and the structured part is paid straight to the assignment company, not through the intermediary.

Does a structured installment sale defer tax like a 1031?

It defers differently. A 1031 postpones the gain until you sell the replacement for cash. A structured installment sale reports the gain as each payment arrives, so the tax is spread over the schedule, not postponed indefinitely.

What happens to depreciation recapture in a structured installment sale?

Unrecaptured Section 1250 gain from straight-line depreciation is reported as payments arrive, before the 20% gain (Treas. Reg. 1.453-12). Ordinary recapture, for example from cost segregation on Section 1245 property, is taxed in the year of sale under IRC 453(i), even though the cash comes later.

Can I change the payment schedule later?

No. The schedule is fixed once the contract is funded. You cannot speed it up, sell it or borrow against it without the tax treating that as a payment (IRC 453A(d)).

What if I already closed into a 1031 and it fails?

A structured installment sale cannot be added after closing, because the buyer has paid in full. The timing relief in Treas. Reg. 1.1031(k)-1(j)(2) may move the gain to the year the intermediary releases the money. See the failed 1031 analysis.

Sources

Checked October 23, 2026.

Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. General education, not tax or legal advice for your situation.

Insurance products offered through Goldstein & Co. LLC dba Goldstein Insurance Services, CA license 4273294. If you implement a structured installment sale through that business, Hans is paid a commission by the insurer; it is built into the payout rate. See the disclosures.

Also free: the book Same Sale, Different Tax, the same $1,000,000 gain taxed ten ways. Want it run on your sale? Book a free scope call to see whether the Big Sale Tax Analysis is worth it.

Who you will talk to

Hans Goldstein · Sacramento, California
Hans Goldstein: Tax & Exit Planning, an independent practice. Enrolled Agent, admitted to practice before the Internal Revenue Service. CA Insurance License #4273294, NPN 20602398.

What happens first: You fill in the short form for a free scope call, about 5 minutes. Hans reviews every one personally and replies within 1 business day. If it is a fit, you get a link to book the call.
The scope call: Fifteen minutes, free: price, timeline, what you are selling and what the money is for. Scope means you hear whether the analysis is worth it for your sale.
What you get: A written side-by-side comparison of your cash-sale baseline against every path that fits, year-by-year numbers, a written recommendation, and a review meeting with you and, if you like, your CPA and attorney.
What it costs: The scope call is free. The Big Sale Tax Analysis is $5,000 per household per transaction, only if you decide it is worth it. No retainer, no hourly billing, no obligation to use any strategy.
How Hans is paid: The $5,000 fee pays for analysis only and is not reduced or credited if you buy anything. You are never required to buy anything. No referral fees are paid to or received from brokers, CPAs or attorneys. Hans is also a licensed insurance producer with a separately owned insurance business. That business is not part of this engagement, and the analysis does not recommend insurance products. If you later choose an installment sale funded through an insurance company, that company pays Hans a commission through his separate insurance business. He may be compensated by that business if you use an insurance-funded installment sale. Hans is an Enrolled Agent (EA), admitted to practice before the Internal Revenue Service. He is not a CPA, attorney or registered investment adviser; the analysis models tax effects and does not recommend specific securities. Read the disclosures.

Book a free scope call or call 213-340-2018. Hans answers or calls back the same business day.

1031 exchange vs structured installment sale