When Jorandus (not his real name) sold his business, he was able to spread the tax impact over several years using the installment method. An installment sale is a transaction in which a person sells a capital asset to a buyer over time and receives at least one payment within one year after the year of sale. For Jorandus, the purchase contract provided that the buyer would pay 30% of the sale price in advance, 40% in one year and the remaining 30% in two years. This allowed Jorandus to report 30% of its capital gains in the first year, 40% in the second year and 30% in the third and final year. As Jorandus had to wait for his payment, the buyer also paid interest on the second and third payments. In the past, many taxpayers have reported profits from M&A transactions using the instalment payment method. However, a proposal by President Joe Biden`s administration to raise the highest capital gains rates for those earning more than $1 million a year from 20% to 39.6% (23.8% to 43.4%, including the net capital gains tax of 3.8%), prompts taxpayers and their advisors to consider whether to opt for the installment payment method for recent sale transactions.4 This Article summarizes some of the pros and cons of choosing between The Payment Methods staggered together. which are also listed in the following table « Advantages and disadvantages of choosing from the instalment payment method ». If a person chooses the method of payment in instalments, he acknowledges the entire profit of the year of sale. Capital losses incurred by an individual in subsequent years cannot be recovered to offset the profit.

Declaring the profits of an installment sale is theoretically simple. The taxation of instalment sales mirrors that of annuities, where a proportional part of each payment is considered a return of capital. The only provisions are that the property for sale cannot be a publicly traded security or part of the regular assets of a company and that the taxpayer cannot be a concessionaire of the property sold (with the exception of certain timeshare dealers who opt for special interest charges under the installment sale method). distribute the proceeds of the sale over the duration of the instalment payment. .