Industry Insights
As a top-rated business CPA firm in Lancaster County, Walz Group brings decades of experience and a strong team that stays current on changing tax laws. When you are preparing to sell a business, rental property, or other significant asset, that experience matters. The right guidance before the deal is finalized can help you understand what is at stake, evaluate planning options, and make more informed decisions.
There’s a moment in almost every significant asset sale when the seller realizes they should have called their accountant sooner. The deal is done, the documents are signed, and the question becomes: how do we minimize the damage? The honest answer is that the best options are often gone by then.
If you’re thinking about selling a business, rental property, or other large asset this year, the time to understand what’s at stake is before that call happens.
When a major asset changes hands, several tax issues typically come into play at once. Understanding them ahead of time is what separates a planned outcome from an unpleasant surprise.
Long-term capital gains receive preferential tax rates of 0,15, or 20%, but those rates depend on your total taxable income for the year, not just the gain itself. The gain stacks on top of your other income when determining which rate applies.
For married couples filing jointly in 2026, the 0% rate applies up to $98,900 of taxable income, the 15% rate applies from there up to $613,700, and the 20% rate applies above that. For single filers, the 20% rate kicks in above $545,500. A large sale can push you across those lines even if your ordinary income alone would not.
Consider a couple with $200,000 in taxable income before a sale. A $2 million long-term gain brings their total to $2.2 million. The first $413,700 of that gain (the portion that fits under the $613,700 threshold) is taxed at 15%. The remainder is taxed at 20%. The difference between the 15% and 20% rates on that upper portion is roughly $79,000. However, that’s a number you might be able to influence through deal structure, timing, or installment planning if you plan ahead.
Every year you own a rental property or business asset, you’re generally entitled to deduct depreciation on your tax return, and most owners do. Those deductions reduce taxable income while you hold the property. When you sell, the IRS collects on them. This is called depreciation recapture. Basically, the portion of your gain that represents previously deducted depreciation gets taxed at a higher rate than the standard long-term capital gains rate.
For rental real estate, the recaptured amount is taxed at a maximum of 25% under what the tax code calls “unrecaptured Section 1250 gain.” For business equipment and other personal property, recapture under Section 1245 is taxed as ordinary income, potentially as high as 37%.
Let’s say you purchased a rental property ten years ago for $300,000, with $50,000 allocated to land, which isn’t depreciable, and $250,000 to the building. Residential rental property depreciates over 27.5 years, so your annual deduction has been roughly $9,100. Over ten years, that’s approximately $91,000 in depreciation deductions.
Those deductions reduced your adjusted basis in the property to about $209,000. If you sell for $400,000, your total gain is roughly $191,000, but it breaks down into two pieces:
On $91,000 of recapture, that’s approximately $22,750 in federal tax before any consideration of the remaining $100,000 gain or state taxes.
What catches some sellers off guard is that recapture doesn’t require the property to have appreciated. If you purchased that same property for $300,000 and sold it for $260,000, you’d appear to have lost money on the deal, but your adjusted basis after ten years of depreciation is only $209,000. You’d owe tax on $51,000 of gain, almost all of it recapture. You sold at a loss and still got a tax bill.
This is why basis documentation and a pre-sale tax analysis matter. A CPA who knows the full depreciation history of the property can tell you exactly what you’re walking into before you’re at the closing table.
For higher-income sellers, a 3.8% net investment income tax may apply on top of capital gains rates. Whether it applies depends in part on your level of participation in the business or property being sold. This is one of several reasons why entity structure and involvement matter.
Many sellers overlook estimated taxes entirely. A large, unexpected gain can result in a significant underpayment of quarterly estimated taxes. Depending on when you close, you may owe a penalty even if you pay the full bill by April. Your CPA can help you plan the right payment timing to avoid that outcome.
One of the most powerful planning tools available is 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 aren’t 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.
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.
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.
Closing a sale before or after December 31st can shift gain into a different tax year, which may affect your rate bracket, net investment income tax exposure, or your installment sale elections. It can also affect how estimated tax obligations are calculated and sequenced.
This flexibility exists, but it requires action before the deal closes. Once you sign, your options narrow considerably.
Tax planning after a transaction is largely damage control. Planning before it is strategic. The difference can be tens of thousands of dollars, or more.
A major sale deserves more than a last-minute tax conversation. With decades of experience and a team committed to staying current on tax law changes, Walz Group helps business owners, property owners, and individuals approach significant transactions with confidence. If you are considering selling a business, rental property, or other major asset, connect with one of Lancaster County’s top-rated business CPA firms before the deal is finalized.
If you rent out a home or second residence it is important to know the rules for self-employment tax.
April 26, 2023
Understand how the IRS taxes short-term rentals, from the 14-day rule to deductible expenses and 1099-K reporting. A must-read guide for short-term rental hosts.
February 17, 2026
Need capital to grow your business? With banks becoming more selective, business owners must be strategic when applying for loans. Before approaching a bank, it’s critical to understand how lenders...
September 17, 2025
