IRC Section 453 is treated identically to post 4 (already completed). This is a duplicate title in the original list. The content is the same as the installment sales post from post 4. Moving to next distinct post.
Frequently Asked Questions
How is the sale of a business taxed?
It depends on the structure. An asset sale allocates purchase price across asset classes with different rates, producing ordinary income on depreciation recapture and inventory and capital gain on goodwill. A stock sale is generally capital gain to the seller but is less attractive to buyers who lose the basis step-up.
What is an installment sale?
A sale where payments are received over more than one tax year, allowing gain to be recognized as payments are received under Section 453. Depreciation recapture under Section 1245 is accelerated into the year of sale regardless of the payment schedule.
What is Section 1202 and how does it affect an exit?
It permits exclusion of a substantial portion of gain on qualifying C corporation stock held for the required period. Because it depends on the entity type at issuance and on holding period, it must be planned years in advance and cannot be added at closing.
How early should exit planning begin?
Three to five years before a sale. Entity structure, reasonable compensation history, clean financial statements, and Section 1202 holding periods all take years to position, and most of the value in exit planning is captured before a buyer is ever identified.