The numbers · Exit strategy comparator · Wealth
Every exit is a tax strategy wearing a closing date.
Sell outright, exchange, or install the gain over a decade of payments. Same property, same buyer, three very different lines on the chart — and one of them is usually not close.
Inputs
Sale price$900,000
Original basis$450,000
Depreciation taken$140,000
Loan balance$300,000
Federal cap-gains rate20.0%
State rate5.0%
Reinvestment growth rate9.0%
Installment note term10 yrs
Installment note rate7.00%
Horizon15 yrs
All three paths reinvest at the same growth rate — the comparison isolates the tax structure, nothing else. Installment path: recapture is due in year one (it can't be spread), principal slices are taxed by the gross-profit ratio, interest as ordinary income. Selling costs fixed at 6%.
After-tax wealth, three exits
1031 exchangeInstallment saleSell outright
The 1031 line still owes its deferred tax if you ever cash out flat — its true lead is the gap that the step-up in basis makes permanent.
Tax if sold today
$141k
$42k recapture + $99k capital gains
Cost of paying it, yr 15
$514k
What the year-one tax bill compounds into — the deferral's real prize
Winner
1031
$1.99M after 15 years, after tax
The verdict
The 1031 wins by $514k. The $141k you don't hand over in year one compounds into $514k of extra wealth by year 15 — and if the position rides to the step-up in basis, the deferred bill is never paid at all. The installment sale earns its keep only when you want income now and the buyer's credit is real.
Sell outright$1.48M
1031 exchange$1.99M
Installment sale$1.32M
Deferred bill riding$141k