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An installment note is useful when a client owns a highly appreciated asset he would like to sell and wants to spread the recognition of and taxation on the gain over a term of years. (However, any gain attributable to excess depreciation that is subject to recapture under IRS §1245 or §1250 is fully recognized in the year of sale. Also, under installment sale rules, all gain is recognized in the year of sale, even if payments on the note extend over several years, if the subject of the note is publicly traded stock.) Installment notes with a self-canceling provision are especially useful when one family members, typically a parent or grandparent, wishes to transfer property to another family member, typically a child or grandchild, with minimal gift and estate tax consequences
