What Is a Self-Directed Installment Sale?

An installment sale of a home is a way to sell the property through payments rather than a lump sum. Offering installment sales can reduce your capital gains tax and offer deferral options, but it can also expose you to a high degree of risk in the case of buyer default. For this reason, many sellers choose a self-directed installment sale managed by a business instead of individually.

Set Up an LLC

The first step with this option is to establish an LLC to own your property. You will be the president or manager of this LLC, and therefore, you will be the one making decisions on the management of the property. The main difference, however, is that the checks will not be made out to your person. Instead, any profits will go toward the business.

Business Tax vs. Personal Tax

Since the business managing the property is the one receiving payments, you will not be exposed to personal capital gains tax. Instead, your sale will qualify under small business tax laws, which can help you defer payment. The business can purchase a new property prior to selling the existing. The net income of the business in the given year will be reduced, resulting in tax deferment.