A business is built to be sold, passed on, or left to compound — not run forever. The terminal transaction has its own tax structure, and the largest fights in any sale are about its shape.
Asset sale versus stock sale. In an asset sale, the buyer purchases the company’s assets individually and takes a stepped-up basis in them, which it can then depreciate — often immediately, under restored 100% bonus depreciation. Buyers favor this. Sellers usually do not: an asset sale splits the gain across asset classes, and the portion attributable to depreciated equipment is depreciation recapture, taxed as ordinary income rather than at capital-gains rates. In a stock sale, the buyer purchases the ownership interest itself; the seller reports a single capital gain — eligible, if the conditions are met, for the IRC §1202 exclusion — and the buyer gets no step-up. Sellers favor stock sales for exactly the reason buyers resist them.
The installment sale. Taking the entire price in one year can push a seller through the top of the capital-gains and ordinary brackets at once. The installment method ( IRC §453, “Installment method”) spreads the gain across the years payments are actually received, holding the seller in lower brackets — though depreciation recapture is still taxed in full in the year of sale, and interest applies to the deferred balance.
Succession. Passing the business to heirs is governed by the estate-planning tools in section “Estate planning” — the family limited partnership, valuation discounts for lack of marketability and minority interest, and trusts that keep the business out of probate. With the federal estate-tax exemption permanently set at $15 million per person ($30 million for a married couple), the planning emphasis for most owners has shifted away from estate-tax avoidance and toward the income-tax section “Capital Gains Resets With Inheritance” — structuring the transfer so heirs inherit the business at a stepped-up basis and shed its built-in capital gain.