How the New Tax Law Affects Your Business Sale

Most owners I talk to know their asking price down to the dollar and have not spent five minutes thinking about what they actually keep. That is backwards. The tax implications of selling a business can swing your net proceeds by 10 to 30 percent depending on how the deal is structured, your entity type, and the state you live in, which means a $2 million sale can put anywhere from roughly $1.4 million to $1.8 million in your pocket after federal and state tax. Same price. Hugely different outcome.

And here is the part that caught a lot of people off guard last year. The One Big Beautiful Bill Act, signed July 4, 2025, rewrote several of the rules that decide how much of your sale the government takes. Some of it is good news. Some of it you need to plan around now, not at the closing table.

I am not a CPA and this is not tax advice. But I have sat across the table from a lot of sellers who left real money behind because nobody walked them through this before they signed. So let me do that.

The Short Version

• Federal long-term capital gains rates did not change under the new law and remain 0, 15, and 20 percent, plus a 3.8 percent surtax, for a top effective federal rate of 23.8 percent.

• How you structure the deal, asset sale versus stock sale, is usually the single biggest factor in your tax bill, and for C corporations a poorly structured deal can cost you close to half the sale price.

• The Qualified Small Business Stock exclusion was expanded and can now wipe out federal tax on up to $15 million of gain for qualifying companies, with a shorter holding period than before.

• Your state matters a lot. A New York seller can pay roughly 11 percent to the state on a gain that a Pennsylvania seller pays about 3 percent on.

• The federal estate tax exemption is now permanently set at $15 million per person, so the 2025 deadline panic is over, but several East Coast states still tax estates far below that level.

Did the New Tax Law Raise Capital Gains Taxes on a Business Sale?

No. The One Big Beautiful Bill Act left the federal long-term capital gains rate structure exactly where it was: 0 percent, 15 percent, and 20 percent, depending on your taxable income. On top of that sits the 3.8 percent Net Investment Income Tax, which most sellers with a large gain will pay. Add those together and the top effective federal rate on a business-sale gain is 23.8 percent. That is the ceiling you should assume for federal purposes before you even look at state tax.

A lot of owners came to me in 2025 bracing for a capital gains hike that never landed. There was a real worry the top individual rate would jump back to 39.6 percent. It did not. The 37 percent top ordinary rate was made permanent, the corporate rate held at a flat 21 percent, and the capital gains brackets only move with the usual inflation adjustments. For 2026, a married couple filing jointly stays in the 0 percent bracket up to $98,900 of taxable income and does not hit the 20 percent rate until income passes $613,700. Source: IRS Revenue Procedure 2025-32.

One thing that catches people: that 3.8 percent surtax kicks in at $200,000 of income for a single filer and $250,000 for a couple, and those thresholds have not moved since 2013. They are not indexed for inflation. So if you sell a business of any real size, assume you are paying it. There is no way around that with timing alone for most sellers.

If you want a clearer picture of what your business is actually worth before you start running tax scenarios, that is a conversation worth having early. Our business valuation services exist for exactly that reason, because the tax math means nothing until you know the number you are working with.

Asset Sale vs. Stock Sale: The Difference That Decides Your Tax Bill

The structure of your sale, asset sale or stock sale, is usually the largest single factor in how much tax you pay. In an asset sale, the buyer purchases the individual pieces of your business: the equipment, the inventory, the customer list, the goodwill. In a stock sale, the buyer buys your ownership interest directly and the company keeps running as-is. Buyers almost always want the asset deal. Sellers usually want the stock deal. That tension is the whole game.

Here is why the buyer pushes for an asset sale. They get a stepped-up tax basis in everything they buy, which means bigger depreciation and amortization write-offs for years after the deal closes. They also dodge most of your old liabilities. Goodwill alone gets amortized over 15 years on their side. That is real money to them, so they fight for it.

And here is why it can wreck a C corporation seller. If your business is a C corp and you do an asset sale, you get taxed twice. The company pays 21 percent on the gain when it sells the assets, and then you pay again, at the shareholder level, when the after-tax money comes out to you. Stack those two layers and the effective rate can climb toward 50 percent of the sale price. I have watched owners realize this for the first time at the negotiating table, and it is not a fun moment.

For a stock sale, the gain is generally taxed once, as a long-term capital gain at those 0/15/20 rates plus the surtax. One layer. That is why C corp owners fight so hard for it. The catch is the buyer inherits your old tax basis and your liabilities, so they will usually shave the price or walk unless you can bridge the gap. If your business is a pass-through, an S corp, a partnership, or an LLC taxed as a partnership, the double-tax problem mostly disappears, because there is no separate corporate-level tax. The gain just flows through to you.

Even in a pass-through asset sale, though, watch the character of the gain. The portion tied to depreciation you already wrote off, called recapture, gets taxed as ordinary income at rates up to 37 percent, not at the friendly capital gains rate. Equipment-heavy businesses feel this the most.

Asset Sale vs. Stock Sale at a Glance

Factor	Asset Sale	Stock Sale
Who usually prefers it	The buyer	The seller
Buyer basis	Stepped up to purchase price	Carryover (old) basis
C corp seller tax	Double taxed, can approach 50%	Single layer of capital gain
Pass-through seller tax	Usually similar to stock sale	Single layer of capital gain
Liabilities	Buyer avoids most of them	Buyer inherits them
Typical effective rate	Roughly 35% to 45% (C corp)	Roughly 15% to 25%

Numbers in the table reflect practitioner ranges reported by firms like MBE CPAs and Doeren Mayhew. The spread between a single-layer deal and a double-taxed one is where the 10 to 30 percent swing in your net proceeds comes from. This is also why structuring the deal well is not a luxury. We work through this with clients in our seller advising services, because the difference between getting it right and getting it wrong is often the biggest check you will ever leave on the table.

Can a buyer get an asset-sale tax benefit on a deal that is legally a stock sale?

Yes. A Section 338(h)(10) election lets a transaction that is legally a stock purchase be taxed as if it were an asset sale, which gives the buyer the step-up they want without the legal headache of transferring every asset. It is most common with S corporations. There is also the F-reorganization, which can accomplish something similar.

Here is the part sellers need to understand. The 338(h)(10) election can convert some of your gain from capital gain into ordinary income through recapture, which means more tax for you. So do not just sign off on it because the buyer asks. A smart seller treats the buyer's desire for that election as a bargaining chip. Either they pay you more to make up the difference, or you give it as a concession to close a deal you want. Never give it away for free.

The QSBS Break Just Got Bigger, and Most Owners Have Never Heard of It

Qualified Small Business Stock, or QSBS, is the single most powerful federal tax break available to sellers of qualifying businesses, and the new law made it significantly better. Under Section 1202, if you hold qualifying C corporation stock long enough, you can exclude a large chunk of your gain from federal tax entirely. Not defer it. Exclude it.

Before the new law, you had to hold the stock more than five years, the exclusion capped at the greater of $10 million or 10 times your basis, and the company had to have under $50 million in assets when the stock was issued. The OBBBA expanded all three of those for stock acquired after July 4, 2025.

1. Shorter holding period. You now get a 50 percent exclusion at three years, 75 percent at four years, and the full 100 percent at five years or more. You no longer have to wait the full five years to get something.

2. Higher cap. The flat exclusion cap went from $10 million to $15 million per issuer, indexed for inflation going forward, or 10 times your basis if that is larger.

3. Bigger companies qualify. The asset ceiling rose from $50 million to $75 million, which pulls a lot more businesses into the club.

Let me be blunt about the catch, because it trips people up. The new shorter holding period and higher caps only apply to stock you acquired after July 4, 2025. If you got your stock before that date, you still live under the old rules and still need the full five years. And if you take a partial exclusion at three or four years, the portion you do not exclude gets taxed at 28 percent, not 20. So the five-year hold is still the sweet spot when you can manage it.

The other thing worth saying plainly: a lot of service businesses do not qualify. Health, law, accounting, consulting, financial services, restaurants, hotels, these are all carved out. QSBS rewards product and operating companies organized as C corporations. If you are early in your company's life and there is any chance of a future sale, this is a conversation to have with your tax advisor now, because entity choice years before a sale is what unlocks it.

How Can I Reduce the Taxes When I Sell My Business?

You reduce the tax on a business sale by structuring the deal as a single layer of capital gain wherever possible, spreading the gain across tax years, and using targeted tools like QSBS, installment sales, personal goodwill, and charitable trusts where they fit your situation. There is no single trick. The savings come from stacking the right moves for your specific deal.

Here are the levers I see used most often, in plain terms.

• Installment sales. Under Section 453, if you take payments over several years instead of all at once, you can spread the gain over those years and potentially stay in lower brackets. The trap: depreciation recapture has to be reported in full in year one no matter how little cash you have collected, and large deferred balances over $5 million can trigger an extra interest charge.

• Personal goodwill. If a big part of your C corp's value comes from your personal relationships and reputation rather than the company's assets, you may be able to sell that goodwill personally and have it taxed only once at your capital gains rate, sidestepping the corporate layer. The Tax Court blessed this in the Martin Ice Cream case. You need to not have signed those relationships over to the company in an employment or non-compete agreement, and you need a real third-party valuation.

• Charitable remainder trusts. If you are charitably inclined, you can move appreciated business interests into a CRT before the sale, let the trust sell without immediate capital gains tax, take an income stream for life or a term of years, and get a partial deduction up front. Timing is everything here. If you sign a binding sale first and move the asset in too late, the IRS treats the gain as yours.

• Opportunity Zones. You can defer gain by reinvesting it into a Qualified Opportunity Fund within 180 days, and after a 10-year hold the appreciation on that new investment can be excluded entirely. The program was made permanent and redesigned for investments starting in 2027, which makes the exact closing date of a late-2026 sale a real tax variable.

That CRT timing point is one I will harp on, because I have seen it go wrong. People get excited about the strategy and sign the purchase agreement before the trust is set up and funded. At that point it is too late. The gain is locked to you. If a charitable trust is part of your plan, it has to be done before the deal is locked in, full stop. Good exit planning handles this kind of sequencing months ahead of a closing, not in the final week.

How much can the right deal structure actually save me?

As a rule of thumb, smart structuring can save roughly 10 to 30 percent of your tax bill, though the real number depends on your entity, your basis, and your state. The clearest illustration is the gap between a single-layer stock sale at an effective 15 to 25 percent and a double-taxed C corporation asset sale at 35 to 45 percent or more. On a multimillion-dollar deal, that gap is life-changing money.

Do I Pay State Tax When I Sell My Business?

Yes, and on the East Coast it can be a lot. None of the East Coast states give you a preferential capital gains rate the way the federal government does. Your business-sale gain is taxed as ordinary income at your state's regular rates. That means where you live when you sell can change your tax bill by hundreds of thousands of dollars on the same deal.

Take a $3 million gain. In New York you are looking at roughly 10.9 percent to the state, which is around $327,000. Move that same seller to Pennsylvania at a flat 3.07 percent and the state bill drops to about $92,000. That is a quarter of a million dollars in difference, driven entirely by a state line. New York City residents have it worse, because the city piles on its own income tax and pushes the combined top rate above 14 percent.

Top State Income Tax Rates on a Business-Sale Gain (2026)

State	Top Rate on Gain	Notes
New York	10.9%	NYC adds city tax, combined over 14%
New Jersey	10.75%	Applies above $1M of income
District of Columbia	10.75%	Top rate at $1M and above
Massachusetts	9%	5% flat plus 4% millionaire surtax
Delaware	6.6%	Graduated rate
Virginia	5.75%	Top rate hits at low income level
North Carolina	3.99%	Flat, down from 4.25% in 2025
Pennsylvania	3.07%	Flat, lowest of the group

Sources: Tax Foundation 2026 state income tax data, NJBIA, and the North Carolina Department of Revenue. One important caveat before anyone packs a moving truck: the state that taxes your gain is generally your state of residence at the time of sale, and states scrutinize sudden relocations hard. A genuine move well ahead of a sale is one thing. A paper move the month before closing invites trouble. Real estate gains can also be taxed by the state where the property sits, regardless of where you live.

What Happened to the Estate Tax Deadline Everyone Was Worried About?

It went away. The federal estate, gift, and generation-skipping exemption was scheduled to get cut roughly in half at the end of 2025. The new law repealed that sunset and set the exemption permanently at $15 million per person, or $30 million for a married couple, starting January 1, 2026. The top federal estate tax rate stays at 40 percent.

That removed a real source of panic. Through most of 2025 I had clients rushing to gift business interests before a deadline that, as it turned out, never arrived. If that was you, you can breathe. The pressure to act before year-end 2025 is gone, and a couple can now shield up to $30 million of total wealth, business value included, from federal estate tax.

Now the part nobody mentions at the celebration. Several East Coast states run their own estate or inheritance taxes with exemptions far below that federal number. Massachusetts taxes estates over just $2 million and offers no spousal portability. New York taxes over about $7.35 million and has a brutal cliff: go more than 5 percent over the line and the entire estate becomes taxable, not just the excess. The District of Columbia taxes over roughly $4.99 million. Pennsylvania and New Jersey hit heirs with inheritance taxes instead. Virginia, North Carolina, and Delaware have neither.

Why does this matter when you are selling? Because turning an illiquid business into cash changes your whole estate picture. There is also a real trade-off between selling during your lifetime and holding the business until death, where your heirs get a stepped-up basis that can erase the built-in gain entirely. That is a planning decision, not an accident, and it is worth making on purpose.

The Bottom Line

The headline price on your business is the number everybody talks about. What you keep is the number that actually matters, and the new tax law moved several of the pieces that decide it. The capital gains rates held steady, the QSBS break got bigger, the estate deadline disappeared, and the gap between a smart structure and a sloppy one is as wide as it has ever been. Get this part wrong and you can hand the government an extra six or seven figures for no reason.

If any of this sounds like your situation, you probably already sense you need to talk to somebody who has been through it before, alongside your own CPA and attorney. That is what we do every day. Reach out to the East Coast Advisory Team and we will walk you through what a sale of your type of business actually looks like, in real numbers, before you sign anything you cannot take back. You can also read our complete guide to selling a small business if you want to see the whole process laid out first.

Frequently Asked Questions

What are the tax implications of selling a business in 2026?

Most business-sale gains are taxed as federal long-term capital gains at 0, 15, or 20 percent, plus a 3.8 percent surtax, for a top effective federal rate of 23.8 percent. Your state adds its own tax, and the deal structure, asset sale versus stock sale, can swing your total bill by 10 to 30 percent of what you keep.

Did the One Big Beautiful Bill Act change capital gains tax rates?

No. The 2025 law kept the federal long-term capital gains structure at 0, 15, and 20 percent with no rate increase. It also made the 21 percent corporate rate and the 37 percent top individual rate permanent. The main changes affecting sellers were an expanded QSBS exclusion and a permanent $15 million estate tax exemption.

Should I do an asset sale or a stock sale to save on taxes?

For a C corporation seller, a stock sale usually means far less tax because it avoids the double taxation that an asset sale triggers, often the difference between a 15 to 25 percent effective rate and a 35 to 45 percent rate. For pass-through entities the gap is smaller. Buyers prefer asset sales, so structure is always a negotiation.

How much tax will I pay if I sell my business in New York?

Federally, expect a top effective rate around 23.8 percent on the gain. New York then taxes the same gain as ordinary income at up to 10.9 percent, and New York City residents pay an additional city tax that can push the combined top rate above 14 percent. Proper structuring is especially valuable in high-tax states.

Can I avoid paying tax on the sale of my business?

You generally cannot avoid all tax, but you can reduce it substantially. Qualifying QSBS stock can exclude up to $15 million of gain from federal tax. Installment sales spread the gain over years, personal goodwill can dodge the corporate layer, and charitable remainder trusts can defer it. The right mix depends on your entity, basis, and state.