What Will I Owe in Taxes When I Sell My Business

Updated 2026

What Will I Owe in Taxes When I Sell My Business

The honest answer is that it depends, and it depends on more factors than most owners expect. But here is the simple version to start.

If you have owned your business for more than one year, which applies to virtually every home services owner we work with, the profit from your sale is treated as a long-term capital gain. At the federal level in 2026 that means you are likely paying somewhere between 15 and 20 percent on the gain depending on your income level. High earners also face an additional 3.8 percent Net Investment Income Tax, bringing the potential federal rate to 23.8 percent. Then add your state tax if your state has one, and the blended rate for most sellers falls somewhere between 15 and 37 percent of the total gain depending on where you live.

On a $3 million gain that is somewhere between $450,000 and $1.1 million in taxes at the high end. That is a very wide range and the reason it’s so wide is that no two sellers are in exactly the same position. Your business structure, your deal structure, your state of residency, your income in the year of the sale, and decisions your tax advisor helps you make before closing all affect where you actually land.

What we can do here is walk you through what is in play so you know the right questions to ask your CPA before you sell. Because the decisions that most affect your after-tax outcome are made before the deal closes, not after.

Long-Term Capital Gains: The Starting Point

When you sell your business at a profit, the gain above your original investment or basis is what gets taxed. Because most home services owners have held their businesses for well over a year, that gain qualifies as a long-term capital gain and is taxed at preferential rates that are significantly lower than ordinary income tax rates.

For 2026, the federal long-term capital gains rates are 0 percent, 15 percent, and 20 percent. The rate you pay depends on your total taxable income in the year of the sale. For a married couple filing jointly, income below $96,700 qualifies for the 0 percent rate. Income between $96,700 and $600,050 is taxed at 15 percent. Income above $600,050 is taxed at 20 percent. For single filers the thresholds are roughly half those amounts. Most home services business owners selling their company will find themselves in the 15 or 20 percent bracket at the federal level, though the large one-time gain from the sale itself can push income above the 20 percent threshold even for owners who are not typically high earners. This is one of the reasons pre-sale tax planning matters so much.

Asset Sale Versus Stock Sale: Why the Deal Structure Changes Your Tax Bill

One of the most important tax decisions in any business sale is whether the transaction is structured as an asset sale or a stock sale, and understanding the difference can mean a significant dollar difference in what you owe.

In an asset sale, which is how most home services transactions are structured because buyers prefer it, the buyer acquires the individual assets of the business rather than the ownership entity itself. For the seller, different assets get taxed at different rates. Goodwill, which typically represents a large portion of the value in a home services business, is taxed at long-term capital gains rates. Equipment, vehicles, and other assets that have been depreciated over the years may trigger depreciation recapture, which is taxed at ordinary income rates of up to 37 percent. The blended effective rate across all assets depends on how the purchase price is allocated.

In a stock sale, the buyer acquires the ownership shares or membership interests in the entity. For the seller this is almost always more favorable from a tax perspective because the entire gain is generally treated as a long-term capital gain without the complication of depreciation recapture. The challenge is that most buyers resist stock sales because of the liability risks and they don’t receive the future tax benefits that come with an asset purchase. In practice most home services transactions end up as asset sales, which means how the purchase price is allocated across the different assets becomes one of the most important tax negotiations in the deal.

Purchase Price Allocation: Where the Tax Outcome Is Actually Determined

In an asset sale, the total purchase price must be allocated across the different assets being sold. The IRS requires both buyer and seller to agree on and report that allocation, and how it is structured directly affects how much of the gain is taxed at capital gains rates versus ordinary income rates.

For a home services business, goodwill represents the intangible value built over years of customer relationships, reputation, and operational excellence. It’s taxed at long-term capital gains rates, which is favorable for the seller. Allocating as much of the purchase price as reasonably possible to goodwill and other capital assets, rather than to equipment subject to depreciation recapture or other ordinary income items, is one of the most direct ways to improve the after-tax outcome. This is a negotiation and having an experienced advisor who understands where the leverage is makes a real difference in how it resolves.

The Installment or Deferred Payment Option

An Installment Sale or Deferred Payment allows a seller to receive the purchase price in payments over multiple years rather than in a lump sum at closing. The tax benefit is that you only recognize and pay tax on the gain as each payment is received, which can prevent a single large gain from pushing all of your income into the highest bracket in one year.

On a multi-million dollar transaction, spreading the gain across two or three years can keep a meaningful portion of it in the 15 percent bracket rather than the 20 percent bracket. On a $3 million gain the difference between paying 15 percent and 20 percent is $150,000. The tradeoff is that you are extending credit to the buyer and accepting the risk that they continue operating the business successfully enough to make the future payments. This type of sale can be secured with collateral but the risk is real and worth weighing carefully against the tax benefit with your advisor.

State Taxes: A Variable Nobody Talks About Enough

Federal capital gains tax is only part of the picture. State income tax on the gain can add significantly to the total bill or nothing at all depending on where you live.

States like Texas, Florida, Nevada, and Tennessee have no state income tax. Sellers in those states pay only the federal rate. States like California, New York, New Jersey, and Oregon tax capital gains as ordinary income at rates that can exceed 13 percent. For a California seller the combined marginal rate can approach 37 percent. The same seller in Texas pays 23.8 percent. On a $3 million gain that difference is roughly $400,000. State tax planning before a sale, including in some cases a planned change of residency before closing, is a legitimate and meaningful part of the overall strategy for sellers in high-tax states and should be discussed with a qualified tax advisor well in advance of going to market.

Why Your CPA Needs to Be in This Conversation Early

The single most important thing we can tell you about taxes and selling your business is this: the decisions that most affect your after-tax outcome are made before the deal closes, not after. Once the purchase agreement is signed and the sale is done, your options for managing the tax outcome are extremely limited. The time to have this conversation is before you agree to the purchase agreement, when you still have time to make meaningful decisions about deal structure, asset classification, installment sale options, and in some cases entity structure changes that can affect how the gain is ultimately taxed.

NorthBase works closely with sellers and their CPAs and tax advisors throughout every transaction to make sure the deal structure is giving your tax advisor the best possible inputs to work with. We are not tax advisors and we do not provide tax advice. But we understand how deal structure affects the tax picture and we make sure the right conversations are happening at the right time. In our experience, sellers who engage their tax advisor early and approach the process with a clear tax strategy consistently walk away with better after-tax outcomes than those who address the tax question after everything else is already agreed upon.

The information in this article is intended for general educational purposes only and does not constitute tax advice. The tax implications of selling your business depend entirely on your individual circumstances including your business structure, deal structure, state of residency, income level, asset composition, and specific financial situation. Every seller's situation is different and the actual tax impact of your sale can only be determined by a qualified CPA or tax advisor who has a complete picture of your finances. NorthBase is not a licensed tax advisor or financial advisor. We strongly recommend engaging a qualified tax professional well before you go to market.

Jason Hoff, Founder of NorthBase, works closely with sellers and their tax advisors throughout every transaction to make sure the deal is structured in a way that supports the best possible outcome. If you want to understand what a sale process looks like for your business, that conversation starts with a 30-minute call that costs nothing.

Jason.Hoff@NorthBase.com | 970-581-9698 | www.NorthBase.com