Feature Articles
Turn a Real Estate Sale Into a Tax-Smart Strategy
Selling appreciated investment or commercial real estate all at once can trigger major tax hits. Structuring the transaction as an installment sale under Section 453 spreads the tax liability over multiple tax years.
Benefits of Installment Sales
By deferring payments across future years, sellers can often keep their income beneath the top 20% long-term capital gains threshold ($545,500 for singles / $613,700 for married filing jointly in 2026) and minimize liability under the 3.8% Net Investment Income Tax (NIIT).
Critical Rules
Depreciation recapture cannot be deferred; it is fully taxable as ordinary income (capped at 25%) in the initial year of sale regardless of the cash received. In addition, installment agreements over $5 million may incur interest charges on the deferred tax balance.
Before You Shred: Know Which Tax Records to Keep
Proper document retention prevents penalties during an audit. As a general rule:
- 3 Years: Standard statute of limitations for filed returns, receipts, and 1099/W-2 statements.
- 6 Years: Required if there is an omission of more than 25% of gross income.
- Indefinitely: Keep tax returns, real estate deeds, and records establishing capital asset cost basis until the properties are fully disposed of.
Plan Carefully to Minimize Taxes on Your Inheritance
Inherited traditional IRAs and 401(k)s generally require non-spouse beneficiaries to withdraw all funds within 10 years, potentially pushing heirs into higher marginal brackets without strategic withdrawal planning.
Tax Tips
- Hiring Your Child This Summer: Wages paid to your child under age 18 working in an unincorporated parent-owned business are exempt from FICA taxes and provide a business deduction.
- Review Your Withholding After Filing: Adjust Form W-4 early if your recent tax filing resulted in an unexpected balance due or large refund.
- IRS Business Tax Account Expansion: Partnerships and S corporations now enjoy increased self-service options through their online IRS business accounts.
