What is the capital gains tax on selling a dental practice?

Selling a dental practice involves multiple tax layers: federal capital gains (15–20%), Net Investment Income Tax (3.8%), depreciation recapture on equipment at ordinary income rates (up to 37%), and state income tax (0–13.3%). The allocation between goodwill, equipment, and other assets determines how much falls into each category. A structured installment sale spreads all of these taxes over 5–20 years.

Does depreciation recapture affect a structured installment sale for a business?

Yes, but it helps. Depreciation recapture is normally taxed at ordinary income rates (up to 37%) in the year of sale — often the most painful part of a business sale. In a structured installment sale, the recapture is recognized proportionally with each installment payment, spreading this high-rate tax across the payment term instead of hitting all at once.

What business types qualify for a structured installment sale?

Eligible entities include sole proprietorships, partnerships, LLCs, LLPs, and S-Corporations. C-Corporation stock sales also qualify. C-Corporation asset sales face double taxation and typically require S-Corp conversion (5-year wait period) before an installment sale structure is effective. The IGH Trust minimum is $100,000 in capital gains.

How does asset allocation affect taxes on a business sale?

Business sales involve three main asset categories: (1) Capital assets like goodwill and going-concern value — taxed at capital gains rates. (2) Depreciable property like equipment and furniture — subject to depreciation recapture at ordinary rates. (3) Inventory — taxed as ordinary income. How the purchase price is allocated across these categories directly impacts your total tax bill. The SIS defers all of these proportionally.

What happens to goodwill in a structured installment sale?

Goodwill (the intangible value of your business above its tangible assets) is classified as a capital asset. Capital gains on goodwill are taxed at the more favorable long-term capital gains rate (15–20%). In a structured installment sale, the capital gains tax on goodwill is deferred and paid proportionally with each installment rather than all at closing.

Can I use a structured installment sale if I own an LLC or partnership?

Yes. LLCs and partnerships are among the most common business structures used with a structured installment sale. The key requirement is that the sale proceeds go directly from escrow into the IGH Trust without the seller taking constructive receipt. The same 3-step process applies regardless of entity type.

What interest rates does IGH Trust offer for business sale structured notes?

IGH publishes transparent, fixed interest rates: 5% for 5-year notes, 6% for 10-year notes, 6.5% for 15-year notes, and 7% for 20-year notes. Both fully amortized and interest-only with balloon payment options are available. Rates are the same for all asset types — businesses, real estate, and other qualifying assets.

Tax Implications of Selling a Business Using a Structured Installment Sale

Q: How can I reduce taxes when selling my business?

A Structured Installment Sale (SIS) defers capital gains by directing sale proceeds from escrow into a trust. Instead of paying 20–40% in taxes at closing, you receive quarterly payments over 5–20 years and pay taxes only on the gain portion of each installment. This is authorized under IRS Code Section 453 and does not require reinvestment in another business or property.

A Structured Installment Sale (SIS) allows business owners to defer capital gains taxes by directing sale proceeds into a trust instead of receiving them at closing. Rather than losing 20–40% of your sale price to federal capital gains, NIIT, depreciation recapture, and state taxes in a single year, you receive quarterly payments over 5–20 years and pay taxes on the gain portion of each installment as received — authorized under IRS Code Section 453.

What Makes Business Sales Different

Unlike real estate, business sales involve multiple asset categories — each taxed differently. How the purchase price is allocated directly impacts your total tax burden.

Asset Category	Examples	Tax Treatment	Rate
Capital Assets	Goodwill, going-concern value, client lists	Long-term capital gains	15–20%
Depreciable Property	Equipment, furniture, dental chairs, technology	Depreciation recapture (ordinary income)	Up to 37%
Inventory	Supplies, materials, work in progress	Ordinary income	Up to 37%
Non-Compete Agreement	Covenant not to compete with buyer	Ordinary income	Up to 37%

Add the 3.8% NIIT and state income tax (up to 13.3%), and a business seller can lose over one-third of the sale price to taxes in a single year.

How a Structured Installment Sale Changes the Math

Maria started her dental practice with $250,000 in 2005. After 20 years of building the business, it's now worth $800,000 — a $550,000 capital gain. Here's how a traditional sale compares to a Structured Installment Sale.

Traditional Sale

Sale Price$800,000

Cost Basis($250,000)

Capital Gain$550,000

Estimated Tax Due at Closing($135,000)

Annual Income After Sale$0

Net Proceeds$665,000

Structured Installment Sale — 10-Year Note

Sale Price$800,000

Cost Basis($250,000)

Capital Gain$550,000

Tax Due at Closing$0

Annual Income (6%)$90,000/yr

Quarterly Payments~$22,500

Replaces Practice IncomeYes

$135K

Tax Deferred at Sale

$90K/yr

Replacement Income

10 Years

Predictable Payment Term

Based on estimated federal and state capital gains taxes. Actual results depend on individual tax situation and asset allocation. Consult your CPA for specific advice.

How It Works: 3-Step Process

Step 1

Promissory Note Issued

You select payment terms (5, 10, 15, or 20 years) and receive a secured promissory note from the IGH Trust. The note terms, interest rate, and payment schedule are fully documented.

Step 2

Business Sold & Funds Enter Trust

At closing, the proceeds go directly from escrow into the IGH Trust. You never take constructive receipt of the funds. This is the critical IRS requirement under Section 453.

Step 3

Deferred Taxation & Income Begins

You receive regular quarterly payments per your note. Capital gains taxes are deferred — recognized only on the gain portion of each installment as you receive it. This replaces the active income from your business with predictable passive payments.

Eligible Business Types

Dental & Medical Practices

Dentistry, orthodontics, dermatology, primary care

Law Firms & Accounting Practices

Legal practices, CPA firms, advisory firms

Consulting & Professional Services

Management consulting, IT services, engineering

Sole Proprietorships

Owner-operated businesses with appreciable goodwill

Partnerships & LLCs

Multi-member LLCs, general and limited partnerships

S-Corporations

Pass-through entities with appreciated business assets

Note on C-Corporations

C-Corporation stock sales qualify for a structured installment sale. C-Corporation asset sales face double taxation (corporate-level and shareholder-level) and typically require S-Corp conversion with a 5-year waiting period before an installment sale structure is most effective. Consult with your CPA and attorney on the optimal approach for your entity.

IRS Compliance for Business Sales

Business structured installment sales comply with the same IRS framework as real estate transactions:

•IRS Code Section 453 — Governs installment sales for business assets, including goodwill and depreciable property
•IRC Section 453B — Additional rules for dispositions of installment obligations
•No Constructive Receipt — Funds flow directly from escrow to trust; seller never touches the proceeds
•Fiduciary Trustee — Professional trust management with Craig S. Redler, JD, TEP as trustee

Frequently Asked Questions — Business Sale Tax Deferral

Related Resources

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Use our free Revenue Estimator to compare a traditional sale vs. a Structured Installment Sale — or schedule a consultation with a specialist.

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Important Disclosure

This information is provided for general educational and informational purposes only. It is not intended to be specific investment, tax, or legal advice and should not be relied upon as such. Tax rates and regulations are subject to change.

Always consult your tax advisor and/or attorney for specific advice pertaining to your specific situation. Rates and terms are subject to change. Past performance is not indicative of future results. Iron Gate Holdings and its affiliates do not provide tax or legal advice.