Installment sale

Definition

A sale paid over time, taxed as the payments actually arrive.

Why It Matters

For a seller it can soften a single large tax year, but the relief is paid for by carrying the buyer's credit risk, so it is a trade-off to price, not free money. For a buyer it is the reason a seller note and the deal structure interact with the seller's tax planning.

In numbers: On a $1M gain taken $200k a year over five years, the seller is taxed on roughly the gain in each year's payment instead of the whole $1M at once. That can keep more of it in lower brackets, but if the business falters the later payments are at risk.