There’s more to selling businesses or real estate than finding the right buyer at the right price. What you walk away with depends greatly on the structure of the deal. If you’ve never considered combining seller carry back financing with help from a Deferred Sales Trust (DST) company, you should. With this approach, you can defer capital gains taxes and retain greater control over your investment income during your asset sale.
Here’s how you can leverage these two tools to create a more powerful asset sale exit strategy.
What Is Seller Carry Back and Why Is It Useful?
Seller carry back, also known as seller financing, occurs when you (the seller) act as the lender for the buyer of your property or business. Instead of the buyer paying the full amount upfront or using traditional bank financing, they agree to make payments directly to you over time. You essentially “carry back” a note that represents part—or sometimes all—of the purchase price.
This arrangement is an attractive option when interest rates are high or when buyers struggle to qualify for conventional financing. By offering seller carry back terms, you open the door to a wider range of buyers, potentially speeding up the sale and even allowing you to negotiate a higher sale price.
You also benefit from earning interest on the note. Instead of taking a lump sum that triggers immediate taxes and needs to be reinvested, you receive consistent payments over time.
While this strategy has obvious advantages, it doesn’t fully protect you from capital gains taxes unless it’s paired with a more advanced structure.
The Tax Problem with a Simple Carry Back Note
A carry back deal lets you spread income over time. However, the IRS still views it as a taxable installment sale. You will owe capital gains taxes on the principal portion of each payment received, even if you’re not fully cashed out. Depending on the size of the sale, you can have large tax obligations in the early years of the repayment schedule.
Let’s say you sell a $4 million commercial building and carry back a $2 million note. As the buyer repays the loan, you’ll be responsible for paying capital gains tax each year on the portion of the principal you receive. That tax bill might be manageable, but it’s not the best strategy. You still lose the ability to invest the full proceeds tax-deferred, and your income is tied entirely to the buyer’s performance.
How DSTs Enhance a Seller Carry Back Strategy
A DST is a capital gains tax strategy that helps you defer taxes on highly appreciated assets. With this IRS-compliant structure, you place your asset(s) in the trust. The trust then sells the asset(s) to a buyer, including any seller carry back you may offer.
Because the trust—not you—enters into the transaction, you don’t take direct possession of the funds. Instead, they return to the DST, which then owes those funds to you. As a result, you can defer capital gains taxes until you actually receive distributions from the trust.
This financial strategy offers several benefits:
- First, you control the pace and structure of payments from the DST based on your personal financial goals. You can receive interest-only income, principal and interest, or a customized payment plan.
- Second, the trust can invest the proceeds in a diversified portfolio. That means even the seller-financed portion of the deal won’t sit idle.
Using a DST also provides you with significant financial breathing room because you aren’t directly involved in the transaction between buyer and seller. For instance, it:
- Allows you to avoid immediate taxation
- Expand your reinvestment options
- Helps you maintain flexibility around how you manage your wealth
- Shields you from buyer-related risks, such as missed payments or defaults.
Why This Works for High-Net-Worth Sellers
The combined seller carry back and DST structure is particularly appealing if you have a high-value asset and want a flexible, legally sound way to transition out of ownership. It is also an excellent tool if you want to retire, diversify your portfolio, or free yourself from management responsibilities, but not at the cost of a massive tax hit.
Whatever position you’re in, this approach gives you both a tax deferral and leverage. You gain the ability to close deals with buyers who might otherwise walk away, retain control over how and when you recognize income, and avoid the liquidity traps that come with receiving one large taxable payment.
How to Know If This Strategy Is Right for You
You may benefit from leveraging seller carry back with a DST if:
- You’re selling an asset with at least $1 million in net proceeds and have capital gains of $250,000 or more.
- You’re looking for creative deal structures and want to defer taxes.
- You have long-term goals around income generation, legacy planning, or reinvestment.
When you choose this strategy, you’ll want expert capital gains tax advice from professionals who understand how to structure both DSTs and seller financing. A tax attorney, a qualified deferred sales trust company, or a financial advisor can guide you through the process. With the right team in place, you’ll ensure that you avoid any expensive missteps while managing your high-value assets.
Improve Your Financial Strategy Today
Seller carry back financing gives you flexibility in structuring deals, while a DST gives you the power to defer taxes and protect your wealth. When combined, they form a powerful, IRS-compliant strategy that helps you reinvest proceeds more wisely and take control of your income on your terms.
Are you preparing to sell a business, investment property, or other high-value asset? Contact Capital Gains Tax Solutions and discover how you can pair seller carry back financing with a DST. We’ll help you build a smarter exit strategy that works just as hard as you have.