Selling a business, rental property, or major asset? Plan before you sign

One of the most common things we hear after a major sale is, "I wish I had called my CPA sooner."

Unfortunately, many of the best tax planning opportunities disappear once the deal is done. If you're considering selling a business, rental property, or other significant asset, understanding the tax implications before you sign can make a substantial difference in your after-tax proceeds.  

Key Tax Considerations

A large sale often involves more than just capital gains tax. Depending on the asset and your circumstances, you may also face:

• Capital gains tax, which varies based on your taxable income.
• Depreciation recapture, which can cause a portion of your gain to be taxed at higher rates.
• Net Investment Income Tax (NIIT), an additional 3.8% tax that may apply to higher-income taxpayers.
• Estimated tax obligations, which can lead to penalties if not addressed proactively.

Planning Opportunities Matter

One of the most powerful planning tools available in the installment sale election, which allows you to spread gain recognition across multiple years as you receive payments rather than reporting everything in the year of sale. This can be especially effective when spreading income keeps you below a rate threshold or reduces your exposure to the net investment income tax. 

But installment sales come with limits that are not always obvious. For instance, depreciation recapture must be reported in the year of sale, even if you elect installment reporting. Understanding which portion of your gain is recapture and which qualifies for installment deferral requires a full analysis of the asset's tax history.

Don't Overlook Basis and Documentation

Your taxable gain is the difference between what you receive and your adjusted tax basis. For rental properties, basis includes the original purchase price plus qualifying capital improvements, minus accumulated depreciation. For a business, it may involve goodwill, asset allocations from a prior acquisition, or contributed property with a carryover basis.

Gaps in documentation can increase your taxable gain. Incomplete records also create problems if your return is ever examined. Gathering and organizing this information before you're in active negotiations gives your CPA time to work through it carefully.

Entity Structure can impact Taxes

How you hold the asset also has a direct bearing on how the sale is taxed. A sale of C-corporation stock versus an asset sale within a C-corp, for example, produces very different outcomes. Asset sales inside a C-corp may be subject to double taxation. S-corporations that converted from C-corp status within the past five years face a built-in gains tax on appreciated assets. Partnership and LLC sales involve their own allocation and basis considerations.

Buyers and sellers often have competing preferences on deal structure, and those preferences have real tax consequences. Pre-transaction planning gives you a clear picture of what each structure means for your after-tax proceeds, so you can negotiate from an informed position.

Start the Conversation Early

Tax planning after a sale is often damage control. Tax planning before a sale is strategic.

If you're considering selling a business, rental property, or other major asset, a conversation with your CPA before negotiations begin can help identify opportunities, clarify potential tax exposure, and better position you for a successful outcome.

At Atchley & Associates, we help business owners, investors, and high-net-worth individuals navigate complex transactions with confidence. The earlier planning begins, the more options you typically have.