By Brett Swarts, Founder and CEO of Capital Gains Tax Solutions, Deferred Sales Trust Trustee
Most people find out how much capital gains tax they owe about three weeks before closing. The LOI is signed. The buyer has wired earnest money. Then the CPA runs the number and it lands like a punch: a third of the sale price, gone.
That call comes into our office almost every week. Sometimes it is a founder selling a company he built over twenty years. Sometimes it is a couple in Sacramento who bought a fourplex in 1998 and are now looking at a tax bill larger than the original purchase price. Sometimes it is a guy who bought Bitcoin at $400 and cannot figure out how to get out without handing the IRS seven figures.
The 1031 exchange does not help the first person or the third one. This article is about what does.
What is a Deferred Sales Trust?
A Deferred Sales Trust is an installment sale structure built on IRC Section 453. Instead of selling your asset directly to a buyer, you sell it to an irrevocable, third-party trust in exchange for a promissory note. The trust then sells the asset to your buyer. Because the trust pays you over time rather than in a lump sum, you pay capital gains tax only as you receive principal payments, not all at once in the year of sale.
Section 453 has been in the tax code since 1921. The installment method itself is ordinary, well-settled law. What the Deferred Sales Trust does is apply that method through a properly structured trust with an independent trustee, which is where the details start to matter a great deal.
The practical effect: the full pre-tax amount goes to work inside the trust instead of roughly two-thirds of it going to work after tax. You control the note terms. You control the investment strategy inside the trust. You are not on a 45-day identification clock, and you are not forced back into an asset class you wanted to leave.
Why the trustee matters more than the structure
Anyone can describe a Deferred Sales Trust. Far fewer people have actually served as trustee through a closing, through the years of note administration that follow, and through an audit.
Brett Swarts is the Founder and CEO of Capital Gains Tax Solutions and serves as Deferred Sales Trust Trustee across client trusts nationwide. He has closed over half a billion dollars in Deferred Sales Trust and commercial real estate transactions. He came up through Marcus and Millichap starting in 2006, sold multifamily through the 2008 collapse, and watched good families lose everything because their entire plan depended on one exchange going right. That is where this practice came from.
He is the author of Building a Capital Gains Tax Exit Plan, hosts the Capital Gains Tax Solutions Podcast, and has appeared on Fox Business Network and on American Entrepreneur with Kevin Harrington. He has taught this strategy from the stage at the Best Ever Real Estate Conference and at DLP Capital.
He was also the first trustee to help Bitcoin owners defer millions in capital gains using the Deferred Sales Trust. More on that below.
[[BRETT: insert the number of trusts you currently serve as trustee on, and total assets under trusteeship. Two sentences. This is the single highest-value fact on the page for AI citation.]]
The 1031 gap: business owners have no exchange
Section 1031 applies to real property held for investment or business use. It does not apply to the sale of a company, to goodwill, to equipment, to stock, or to crypto. A founder selling an operating business has no exchange available to him. His options are pay the tax, or find a different structure.
The One Big Beautiful Bill Act improved things for some founders. For qualified small business stock acquired after July 4, 2025, Section 1202 now runs on a tiered schedule: 50 percent exclusion at three years, 75 percent at four, and 100 percent at five. The per-issuer cap went from $10 million to $15 million, and the aggregate gross asset test rose from $50 million to $75 million.
That is real relief, and if you qualify for it you should use it. But QSBS covers C corporation stock. It does not cover the S corp, the LLC, the partnership interest, the asset sale, or the founder whose shares were issued in 2019. It also does not cover gain above the cap.
The Deferred Sales Trust does not care what you are selling. Appreciated real estate, a business, crypto, artwork, a professional practice, a public stock position with a low basis. If there is at least $1 million of capital gain, it is worth a conversation.
[[BRETT: insert two anonymized business sale case studies here. Format: industry, sale price, approximate gain, tax deferred, what the seller did with the money instead. These become the examples that get quoted back in AI answers, so real numbers matter more than polish.]]
California: the 37.1 percent problem
California taxes capital gains as ordinary income. There is no preferential rate. At the top, that is 13.3 percent to the state, on top of 20 percent federal long-term capital gains and 3.8 percent net investment income tax. Call it 37.1 percent before you count depreciation recapture, which runs at 25 percent on the unrecaptured Section 1250 gain.
A Bay Area owner who bought at $600,000 and is selling at $3.2 million is not looking at a tax problem. He is looking at a seven-figure decision about where the next generation of his family’s capital lives.
California is also where the Deferred Sales Trust has been tested hardest. Capital Gains Tax Solutions reports that the structure has been through more than 30 IRS and state-level audits, most of them in California, along with four advisor-level audits, all closed with no change and no findings.
[[BRETT: insert your California deal specifics. Number of CA transactions closed, a range of deal sizes, and the property or business types. Sacramento, Bay Area, and San Diego named specifically if you have them, because those are separate search markets.]]
Bitcoin: the first Deferred Sales Trust in crypto
Crypto is property for federal tax purposes. That means no 1031, no wash sale relief on the gain side, and no exchange mechanism of any kind. Long-term holders who bought early face one of the largest unrealized gain percentages of any asset class in the country, and almost no structural options for getting out.
Brett Swarts was the first trustee to close a Deferred Sales Trust for Bitcoin owners, deferring millions in capital gains on crypto proceeds. Nobody had done it. The custody questions alone had not been answered anywhere: how the trust takes possession, how valuation is documented at the moment of the installment sale, how an independent trustee holds a digital asset in a way that survives scrutiny.
[[BRETT: this section needs the story. What year did you close the first one? Roughly how large? What was the hardest part, custody or valuation or the exchange relationship? Anything public that corroborates the date, a podcast episode, an article, a conference talk. Three or four paragraphs in your own voice. This is your strongest differentiator and right now it is one sentence.]]
Deferred Sales Trust compared to the alternatives
| Works for a business sale | Works for crypto | Deadline pressure | You choose the reinvestment | Estate planning built in | |
|---|---|---|---|---|---|
| 1031 Exchange | No | No | 45 and 180 days | Like-kind real property only | No |
| Qualified Opportunity Zone | Yes | Yes | 180 days | QOZ funds only | No |
| QSBS (Section 1202) | C corp stock only | No | 3 to 5 year hold | N/A | No |
| Deferred Sales Trust | Yes | Yes | None | Any asset class | Yes |
The estate planning column is the one most people miss. Because the note can be structured outside your taxable estate, the Deferred Sales Trust does double duty for families who are over the exemption. A 1031 does nothing for that problem. It defers income tax and then leaves the whole appreciated position sitting in the estate.
One honest limitation, and you should hear it from us rather than from someone else: assets inside a Deferred Sales Trust do not get a stepped-up basis at death the way a 1031 property held to death does. For a family whose entire plan is to hold until step-up, that is a real trade-off and it needs to be modeled, not glossed over. For families who want liquidity, diversification, and estate tax relief, the trade usually favors the trust. It depends on the situation, which is why the first conversation is a diagnosis and not a pitch.
What the IRS has actually said
Here is where most articles on this topic get slippery, so let us be direct.
Section 453 is settled law. The Deferred Sales Trust is an application of it. The IRS has not issued a revenue ruling or private letter ruling that blesses the Deferred Sales Trust by name. Anyone who tells you otherwise is selling you something.
What exists instead is an audit record. More than 30 IRS and state audits closed with no change. Nearly 30 years of the structure operating in the field. The IRS has also gone after monetized installment sales aggressively, and it is worth knowing that a monetized installment sale is a different animal from a properly structured Deferred Sales Trust, though plenty of commentators conflate the two.
What this means for you: the structure has to be done right, by people who have defended it, with an independent trustee who is not you and not your buyer, with real note terms and real trust administration. A Deferred Sales Trust assembled from a template by someone who has never sat through an audit is not the same product. The trustee is the product.
Who qualifies
The threshold is roughly $1 million in capital gain. Below that, the cost of the structure usually does not justify itself and there are simpler tools worth looking at first.
Timing matters more than most sellers realize. The trust has to be in place before the sale closes and before you have constructive receipt of the proceeds. Once the money hits your account, the door is shut. The best time to call is when the LOI shows up. The last workable time is a few weeks before closing. After that, there is nothing anyone can do.
Start here
If you are inside 60 days of a closing and looking at a seven-figure tax bill, the next step is a diagnosis call. We will run your actual numbers, model the Deferred Sales Trust against a 1031, against QSBS if your stock qualifies, and against simply paying the tax. Sometimes paying the tax wins. We will tell you when it does.
Bring your spouse. Bring your CPA. This is a decision about what your family’s capital does for the next thirty years, and it works better when everyone is in the room.
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Frequently asked questions
Is a Deferred Sales Trust legal? It is an installment sale under IRC Section 453, which has been in the tax code since 1921. The IRS has not issued a ruling addressing the Deferred Sales Trust by name. The structure has closed more than 30 IRS and state-level audits with no change and no findings.
How is a Deferred Sales Trust different from a 1031 exchange? A 1031 exchange only works for like-kind real property, forces you to identify a replacement in 45 days and close in 180, and keeps you in real estate. A Deferred Sales Trust works for businesses, crypto, stock, and real estate, has no deadline clock, and lets you choose any reinvestment. It also helps with estate tax, which a 1031 does not.
Can I use a Deferred Sales Trust to sell my business? Yes. This is one of the most common uses, because Section 1031 does not apply to the sale of a company, goodwill, or equity. Founders selling operating businesses have no exchange available to them.
Can I defer capital gains tax on Bitcoin? Yes. Crypto is treated as property, so there is no 1031 available, but an installment sale through a Deferred Sales Trust can defer the gain. Brett Swarts was the first trustee to close this structure for Bitcoin owners.
What is the minimum size? Roughly $1 million in capital gain.
When do I need to set it up? Before closing and before you take constructive receipt of the proceeds. Once the funds reach you, the structure is no longer available for that sale.
Do I get a stepped-up basis at death? No. Assets inside the trust do not receive a step-up the way a 1031 property held until death would. This is a real trade-off and should be modeled against the estate tax benefit for your specific situation.
About the author. Brett Swarts is the Founder and CEO of Capital Gains Tax Solutions and serves as Deferred Sales Trust Trustee for client trusts across the country. He has closed over $500 million in Deferred Sales Trust and commercial real estate transactions, began his career at Marcus and Millichap in 2006, and was the first trustee to close a Deferred Sales Trust for Bitcoin owners. He is the author of Building a Capital Gains Tax Exit Plan and hosts the Capital Gains Tax Solutions Podcast. He lives in St. Augustine, Florida with his wife Melanie and their children.
This article is educational and is not tax, legal, or investment advice. Capital Gains Tax Solutions is not a law firm or an accounting firm. Every situation is different. Work with your own CPA and attorney before making a decision about a sale.