Selling a business
Capital gains tax on the sale of a business
When you sell a business, the gain above your basis is taxed mostly as long-term capital gain, with some parts taxed as ordinary income. Taken as a lump sum, it all lands in one tax year. A structured installment sale under IRC §453 spreads it over the years you choose.
WHERE ARE YOU IN THE SALE?
HOW THE SALE IS TAXED
What decides your tax bill
Selling a business you've built for 10, 20, or 30 years is supposed to be the payoff. These six things decide how much of it you keep.
Capital gain or ordinary income
Most of the price, including goodwill, is generally long-term capital gain, taxed federally at 0%, 15% or 20%. Inventory, receivables and depreciation recapture are taxed as ordinary income.
How much tax on a business sale →Asset sale or stock sale
Buyers usually prefer an asset sale; sellers usually prefer a stock sale, where the gain is typically all long-term capital gain. The structure is negotiated.
Stock sale vs. asset sale →Purchase price allocation
In an asset sale, the price must be allocated among asset classes under IRC §1060. Not all asset classes are taxed equally, so the split decides how much is capital gain.
Allocating toward goodwill →Depreciation recapture
Recapture on equipment and other depreciated assets is ordinary income, and it is taxed in the year of sale, even in an installment sale.
Recapture in an installment sale →Net investment income tax
The 3.8% NIIT may apply above an income threshold. Whether it applies to your gain depends on how actively you ran the business.
How the sale is taxed →State tax
Most states tax the gain on top of federal tax, and rates vary widely. Where you live in the year you're paid matters.
Capital gains tax by state →Illustration, not to scale. 2026 federal long-term capital gains rates; the 3.8% NIIT may also apply above a threshold. Your bracket depends on filing status and other income.
YOUR OPTIONS
Ways to defer or reduce the tax
Read: How to minimize capital gains tax when selling a business →BY TYPE OF BUSINESS
Guides for your kind of business
BY TIMING
Where you are decides what's still possible
A structured sale has to be in place before closing, when the money would otherwise be paid to you.
A year or more before the sale
Deal structure, allocation and timing are all still open. See the strategies →
You've signed a letter of intent
Usually not too late, as long as it's set up before closing. Check eligibility →
Closing this year
Bring your CPA and attorney in early. Talk to our team →
Retiring after the sale
Turning a business sale into retirement income. Read the guide →
FOR CPAs AND ADVISORS
Bringing a structured sale to a client
How the assignment works, IRC §453 and Form 6252 reporting, and when to raise it with a client.
How much capital gains tax will I owe on my business sale?
Federal long-term capital gains rates in 2026 are 0%, 15%, or 20%. Many larger sellers reach 20%, and the 3.8% NIIT and state tax can add to that. The calculator estimates your own bill.
What's the difference between an asset sale and a stock sale?
In a stock sale, the seller's gain is typically all long-term capital gain. An asset sale mixes capital gain with ordinary income from depreciation recapture, and C-corporation sellers can face double tax.
Can a structured installment sale be combined with a stock sale?
Yes. Stock of a closely held C-corp or S-corp is a qualifying capital asset under IRC §453. The assignment and funding work the same way for stock and asset deals.
Does the buyer have to pay me over time?
No. The buyer pays in full at closing. The installment obligation is assigned to a third party, which makes the payments to you on the schedule you choose.
Is depreciation recapture deferred too?
No. Recapture is taxed as ordinary income in the year of sale. The installment method applies to the capital gain.
I've already signed a letter of intent. Is it too late?
Usually not. The structure needs to be in place before closing, before the proceeds would be paid to you.
Guarantees depend on the financial strength and claims-paying ability of the issuing insurer. Review any structure with your CPA and attorney.
What are you selling?
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