StructuredSales.org
StructuredSales.org
Virginia's income tax looks mild until you notice where the top bracket begins. Five and three-quarters percent is not California. Under Va. Code § 58.1-320 it applies to every dollar of taxable income over $17,000, and it has applied that way since 1990. The brackets do not double for a joint return. A couple selling a government-contracting firm in Tysons, rentals in Richmond's Fan, a Norfolk practice, or a Shenandoah orchard does not get a long runway of lower rates. A salary, a military pension, or a working spouse usually puts them over $17,000 before the closing statement is signed. The gain is taxed at 5.75%.
That changes what an installment sale is for. In a state whose surtax starts at a high number, spreading can miss the surtax. In Virginia the state percentage on a real sale does not move. The federal 15% and 20% brackets do. So do the questions that are actually Virginian: who taxes the payments after a move to Florida, what part of a Northern Virginia home sale is even eligible once the residence exclusion is applied, and which "Virginia business" subtractions people still quote after the investment window closed.
Section 58.1-320 taxes taxable income at 2% to $3,000, 3% to $5,000, 5% to $17,000, and 5.75% above $17,000. Virginia Tax publishes the same schedule. Capital gain enters through federal adjusted gross income under § 58.1-322. There is no long-term subtraction and no county or city income tax on the gain.
The lower brackets are too small to plan a business sale around. The room from zero to $17,000, if you had no other taxable income at all, is a few hundred dollars of tax against a gain measured in millions. Once other taxable income is over $17,000, the marginal rate on the gain is 5.75% in a lump-sum year and 5.75% in every installment year. Spreading schedules a Virginia payment. It does not create a Virginia bracket benefit.
The qualified-business subtraction is real and is limited to investments made from April 1, 2010, through June 30, 2020. It is not a 2026 subtraction for the founder selling the company. The age deduction for taxpayers 65 and older exists and is income-limited. A large gain often phases it out. This page does not quote a 2026 dollar amount. Use the Form 760 worksheet. It is not a capital-gain exclusion.
Northern Virginia exits are often equity sales of professional-services and technology firms whose value is contracts and people. Personal goodwill held more than a year is typically the long-term piece that can go on an installment schedule. Accounts receivable and depreciation recapture cannot. The business-sale guide and the professional-practice guide cover that split. Virginia taxes whatever lands in federal adjusted gross income, at 5.75% if you are already over $17,000. There is no separate goodwill regime.
Richmond, Hampton Roads, and Charlottesville add the landlord who is done. A small apartment building can produce federal unrecaptured section 1250 gain, taxed at up to 25% federally, plus Virginia tax at 5.75% on the gain in Virginia taxable income. The apartment-sale comparison sets installment reporting next to a 1031 exchange. Virginia follows federal recognition. A completed 1031 defers the Virginia gain with the federal gain. A failed exchange that becomes a taxable sale is a taxable Virginia sale in the same year. Installment reporting is available if at least one payment comes after the year of closing and you do not elect out.
The Valley and Southside still produce farmland and timber sales. There is no Virginia retired-farmer exclusion. The gain is in the 5.75% computation. Virginia's estate-tax chapter, §§ 58.1-901 and following, is a pickup of the old federal state-death-tax credit, not a stand-alone estate tax with an annually published exemption. Whether that chapter produces a bill in a given year of death is a question for estate counsel. It is not a reason to pretend the income-tax rate will be lower if you wait, and it is not a reason to assume the pickup is zero without that look.
Primary residences are the sale Virginians ask about first. The federal section 121 exclusion can remove $250,000 or $500,000 of gain, and Northern Virginia prices put many houses over it. Gain above the exclusion is capital gain, and Virginia taxes it. The tests are in the home-sale guide. Installment reporting of the taxable remainder is possible. It does not increase the exclusion.
Nonresidents pay Virginia tax on Virginia-source income. Gain from real estate in the Commonwealth is Virginia-source in the year it is recognized. An installment sale does not re-source that gain to Florida or Tennessee because that is where the seller now collects the mail. You file a nonresident return as the payments arrive, unless the remaining gain has been recognized or disposed of under the federal rules.
Interest is a different asset. P.D. 94-274 held that interest on a note secured by Virginia real estate was intangible income, taxed by the noteholder's domicile, where the seller had moved and the sale produced no gain. The gain on the realty stayed Virginia-source. That ruling is about a mortgage note the seller still holds. A structured sale pays an annuity after the buyer pays an assignment company at closing. Do not treat the 1994 interest result as covering that annuity. The seller-financing comparison is the federal difference between the two.
A married couple in Fairfax County sells the S corporation through which they ran a professional-services firm. After basis, and after the ordinary-income items taxed in the year of sale, $1.75 million is long-term capital gain. Other Virginia taxable income is already over $17,000. They compare recognizing it at closing with recognizing $250,000 in each of seven years.
Assumptions. Joint residents. Other Virginia taxable income is already over $17,000, so the marginal Virginia rate on every dollar of this gain is 5.75% in both columns. Federal taxable income before the gain is $150,000, above the 2026 joint 0% long-term threshold of $98,900 in Rev. Proc. 2025-32. Other MAGI is already over $250,000, so the 3.8% net investment income tax applies to the full gain either way. The installment case recognizes equal gain each year and ignores interest. No age deduction. Estimates only.
| Lump sum | Seven years, total | |
|---|---|---|
| Long-term gain recognized | $1,750,000 | $1,750,000 |
| Estimated Virginia tax at 5.75% | $100,625 | $100,625 |
| Estimated federal long-term capital gains tax | $326,815 | $262,500 |
| Estimated net investment income tax | $66,500 | $66,500 |
| Combined estimate | $493,940 | $429,625 |
Virginia tax is $100,625 either way, because 5.75% of $1.75 million does not depend on the calendar. The table repeats the number so the point is visible. A pitch that markets a Virginia installment sale as a state-rate reduction is describing a different statute.
Federal long-term tax falls from $326,815 to $262,500. In the lump-sum year, $463,700 is taxed at 15% and $1,286,300 at 20%. Each installment year adds $250,000 to $150,000 and stays under the $613,700 joint threshold, so the gain stays at 15%. The 3.8% tax is $66,500 either way. The table leaves out the §453A charge, which applies when the sales price exceeds $150,000 and obligations arising in the year and outstanding at year-end exceed $5 million of face amount. A single practice is often under that line. The interest-charge calculator is a federal sketch.
Recapture, and compensation dressed up as an earnout, is ordinary income in the year it is ordinary. A related buyer who resells within two years can accelerate the rest under §453(e). Virginia taxes that income when federal AGI does, at 5.75% once you are over $17,000. A Virginia CPA should see the draft before the payment terms are fixed.
Virginia taxes capital gains as ordinary income. Under section 58.1-320, the rates are 2% on taxable income up to $3,000, 3% to $5,000, 5% to $17,000, and 5.75% on taxable income over $17,000. The brackets are the same for every filing status and have been in that form since 1990. There is no lower rate for long-term gain and no local income tax on the gain.
Not in any way that matters on a real sale, if your other Virginia taxable income is already over $17,000. Every additional dollar of gain is taxed at 5.75% whether you recognize it in one year or over ten. Installment reporting changes when you pay Virginia. The percentage stays. The federal 15% and 20% long-term brackets are where a large gain usually sees a lower tax from spreading. The illustration on this page shows the Virginia line unchanged on purpose.
Virginia taxes gain on Virginia real estate when it is recognized, including installment gain after you move. P.D. 94-274 treats interest on a note the seller still holds as intangible income taxed by the new domicile. A structured sale is funded by an annuity, not that note. Do not assume the 1994 ruling covers the annuity.
Virginia's estate-tax chapter is written as a pickup of the old federal state-death-tax credit. It is not a modern stand-alone estate tax with its own exemption of the kind Rhode Island publishes each year. Do not plan as if a Virginia estate tax will be owed, and do not plan as if a lawyer has confirmed the credit-pickup produces zero, until counsel has looked at the year of death. The income-tax decision in this guide does not depend on that chapter.
Not a general one. Virginia has a narrow subtraction for certain long-term gain on investments in qualified small Virginia businesses, and it is limited to investments made in a window that closed in 2020. It is not a subtraction for the goodwill of an operating company you founded and are selling in 2026. Taxpayers 65 and older may have an income-limited age deduction. That deduction is not a capital-gain exclusion, and a large sale often phases it out. Confirm the current age-deduction worksheet before you count on it.
Last reviewed: October 22, 2026.
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