StructuredSales.org
StructuredSales.org
The private equity roll-up of home services businesses — HVAC, plumbing, electrical, roofing, and pest control — is one of the most active deal markets in the country in 2026. More than 27 PE-backed platforms are actively acquiring trades businesses, and deal activity rose 88% year-over-year through mid-2025. For HVAC and home services business owners, this means unprecedented buyer demand and strong valuations — but also a significant tax challenge when it comes time to close.
A well-run HVAC company with $1M in EBITDA might sell for $5M–$8M today. On a lump-sum asset sale, the owner could easily face a combined federal and state tax bill of $1.2M to $2M+. A structured installment sale under IRC §453 offers a way to spread that liability across years, reduce the effective rate, and receive a secure, guaranteed income stream backed by a top-rated life insurance company.
Why taxes hit harder in trades business sales: HVAC and home services companies typically have large amounts of fully-depreciated equipment — vehicles, tools, diagnostic equipment. All of that prior depreciation is recaptured as ordinary income in the year of sale, often generating a $200,000 to $600,000 ordinary income tax bill before any capital gains taxes.
Most PE acquisitions of HVAC businesses are structured as asset purchases (or a 338(h)(10) election for S-corps), because buyers want a tax basis step-up in the assets. This is favorable for the buyer but creates a tax complexity for the seller: asset sales require allocating the purchase price across multiple asset classes, each with different tax treatment.
| Asset Category | Common Items | Tax Rate to Seller |
|---|---|---|
| Equipment & vehicles | Service vans, tools, diagnostic equipment | Ordinary income (§1245 recapture) up to 37% |
| Real estate (if included) | Shop, warehouse | 25% §1250 unrecaptured gain + cap gains rate |
| Customer relationships | Maintenance contracts, recurring accounts | Capital gains (0/15/20%) |
| Trade name / brand | Company name, phone numbers, website | Capital gains |
| Non-compete covenant | Agreement not to compete | Ordinary income |
| Goodwill | Going-concern value | Capital gains |
The non-deferrable portion (equipment recapture and non-compete income) must be recognized in the year of sale regardless of installment treatment. The capital gain portion — typically goodwill and customer relationships — is what benefits from installment deferral.
Facts: Family-owned HVAC company, Florida (no state income tax), sells to PE platform for $2,500,000. Allocation: $400,000 equipment (fully depreciated — all recaptured as ordinary income in year 1), $100,000 non-compete (ordinary income), $2,000,000 goodwill and customer relationships (capital gain). Adjusted basis in goodwill: $0. Structured sale on capital gain portion: 5% interest, 10-year term. Annual payment on $2M: approx. $259,009/year.
| Tax Component | Lump Sum | Structured (10yr) |
|---|---|---|
| Equipment + non-compete (ordinary income) | $185,000 (37%) | $185,000 (year 1, not deferrable) |
| Goodwill gain — federal LTCG | $400,000 (20%) | $300,000 (15% avg) |
| NIIT (3.8% on gain above $200K) | $68,400 | $0 (under threshold most years) |
| Total federal tax | $653,400 | $485,000 |
| Interest income earned (5%, 10yr) | $0 | $590,091 |
Federal tax savings: approximately $168,400. Total benefit including interest earned: $758,000+ over the 10-year term. In a high-tax state (California, New York, New Jersey), state tax savings would add significantly to this figure.
Many PE acquisitions include a rollover equity component — the seller retains a small equity stake (typically 5–20%) in the acquiring platform, betting on a larger future payout when the platform is eventually sold again (the "second bite of the apple"). This is an attractive feature but creates a complication for structured installment sales: rollover equity is not a cash payment, so it is generally not eligible for installment treatment. The rollover equity stake is typically treated as a tax-free exchange of property under a §351 or §721 transaction.
Practically speaking, the structured installment sale applies to the cash portion of the acquisition, while the rollover equity is handled separately. A seller receiving $2.5M cash + $300K in rollover equity would structure the installment sale on the $2.5M cash consideration only.
The most valuable HVAC businesses in 2026 are those with large books of maintenance agreements and service contracts — recurring, contracted revenue that transfers with the business. Buyers allocate significant purchase price to these customer relationships. For the seller, customer relationship intangibles are capital-gain assets when sold as part of a business sale, making them ideal candidates for installment deferral. Ensure your purchase price allocation maximizes the value attributed to customer relationships rather than to ordinary-income categories like covenant-not-to-compete payments.
Yes, if the transaction is structured as an asset purchase or a stock sale with cash consideration. PE platform acquisitions frequently use asset purchase structures, which are compatible with installment sale treatment. If the deal includes rollover equity (you keeping a minority stake in the acquiring company), that equity portion cannot be deferred — only the cash portion qualifies for installment treatment.
Add-on acquisitions by PE-backed platforms are trading at 4x to 8x EBITDA for businesses with $500K–$5M in EBITDA. Larger platforms with $5M+ EBITDA and strong recurring revenue (service contracts, maintenance agreements) may command 8x–12x. The Blackstone acquisition of Champions Group in early 2026 at approximately $2.5B (roughly 18.5x EBITDA) illustrates platform-level valuations, but these are exceptional cases.
In an asset sale, equipment and vehicles that have been depreciated are subject to §1245 recapture, taxed as ordinary income up to the depreciation taken. Goodwill and going-concern value are capital gains. In a stock sale, all gain is generally capital gain — no recapture. PE buyers strongly prefer asset purchases for tax step-up reasons; sellers generally prefer stock sales. The structured installment sale applies either way but is especially valuable in asset sales with heavy equipment that creates large recapture amounts.
Deferred revenue from prepaid service contracts is a liability that reduces the purchase price allocation to other assets. Buyers often want a large portion of the purchase price allocated to customer relationships and service contracts. Properly structured, customer relationships and goodwill are capital-gain assets. Work with your transaction CPA on the purchase price allocation to maximize capital-gain treatment.
The installment note receivable (or annuity contract in a structured installment sale) passes to your heirs through your estate. Depending on the structure, heirs may receive the remaining guaranteed payments directly. Unlike a traditional installment note where buyer default is a risk, a structured installment sale backed by a rated life insurer guarantees payment regardless of what happens to the buyer or the acquired business.
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