Selling a Business: How the Sale Is Taxed

Last reviewed: October 2026

Asset sale or stock sale?

• Asset sale: the buyer purchases the business's equipment, customer list, name and goodwill. Buyers usually prefer this because they get new depreciation. This is how most sole proprietorships and one-owner LLCs are sold.
• Stock or ownership sale: the buyer purchases your shares or LLC interest. Sellers often prefer this because more of the gain can be capital gain.

How the price is split

In an asset sale, buyer and seller agree on how the price is divided, and both report it to the IRS on Form 8594. The split matters:

• Inventory: ordinary income.
• Equipment, vehicles and property: gain up to what you already depreciated is often taxed as ordinary income. See depreciation recapture.
• Goodwill and customer relationships you built: usually long-term capital gain. See capital gains tax.
• A non-compete agreement: ordinary income to you.
• Consulting or a job after the sale: wages or self-employment income, not part of the sale price.

Get the split written into the sale agreement. Matching numbers on both sides' Form 8594 prevents IRS questions later.

Getting paid over time

If the buyer pays you over several years (seller financing), you can often spread the gain over those years with an installment sale on Form 6252. Depreciation recapture is still taxed in the year of the sale, even if you haven't been paid yet.

Before you sign

• Talk with us before the price split is final. Once it's signed, it's hard to change.
• Plan for estimated tax payments in the year of the sale. See quarterly estimated taxes.
• Use an attorney for the sale agreement and a business broker or appraiser for the price. We handle the tax side.

More for business owners

• Starting a business in Florida
• Should I elect S corporation status?
• Hiring your first employee
• Closing a business
• Selling a business

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