A taxable sale of a business might be structured as an installment sale if the buyer lacks sufficient cash or pays a contingent amount based on the business’s performance. An installment sale also may make sense if the seller wishes to spread the gain over a number of years — which could be especially beneficial if it would allow the seller to stay under the thresholds for triggering the 3.8 percent net investment income tax or the 20 percent long-term capital gains rate.
But an installment sale can backfire on the seller. For example:
Depreciation recapture must be reported as gain in the year of sale, no matter how much cash the seller receives.
If tax rates increase, the overall tax could wind up being more.
For more information on installment sales, contact our tax or M&A advisors in Michigan, Houston or Ft. Lauderdale.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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