How to Sell a Portion of Your LLC Ownership
Selling a portion of your LLC ownership allows you to bring in new partners, raise capital, or reduce your involvement in the business while...
9 min read
LegalGPS : Jun. 6, 2025
Selling your LLC in 2025 could result in a significant payday—but it also comes with important tax consequences. Whether you’re selling to a competitor, an investor, or an employee, the way the deal is structured and how your LLC is taxed will directly impact how much you keep after taxes.
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In this guide, we’ll walk through the key tax rules that apply in 2025, explain how your LLC’s setup affects the sale, and offer strategies to minimize your tax burden before closing the deal.
The IRS doesn’t view all LLCs the same. Even though your company is legally an LLC, the way it’s taxed determines how your gains from the sale will be reported.
Here’s how it breaks down:
If you’re the sole owner and haven’t made any special tax elections, the IRS treats your LLC as a disregarded entity. That means the business’s income flows directly to your personal tax return (Form 1040, Schedule C). When you sell the LLC, the IRS views it as you selling individual assets, not shares in a company.
Tax implication: You’ll be taxed on the gain from each individual asset sold (e.g., goodwill, equipment, contracts), which may be taxed at capital gains rates or ordinary income rates, depending on how each asset is classified.
If your LLC has multiple owners and hasn’t elected corporate taxation, it’s taxed as a partnership. Each partner receives a share of the gain on their personal tax return, based on their ownership percentage. Like single-member LLCs, the IRS treats the sale as an asset sale unless you sell your partnership interest.
Tax implication: You may be taxed on both capital gains and ordinary income, depending on how the purchase price is allocated and how much depreciation you’ve taken on assets.
If your LLC elected to be taxed as a C Corporation or S Corporation, the rules are different:
Tax implication: You’ll generally want to avoid selling assets directly from a C Corp because of the double tax hit. Selling stock or membership interest is often more favorable in these cases.
Many LLC owners forget how their tax election affects a sale. Before listing your business or signing a letter of intent, review your entity’s tax classification with a CPA to understand the specific consequences of different deal structures.
One of the most important decisions in selling your LLC is whether the deal will be structured as an asset sale or an equity sale (also called a membership interest sale). The tax implications of these two structures are very different—and knowing how they work can help you negotiate a deal that leaves more in your pocket.
In an asset sale, the buyer purchases specific assets and liabilities of your business, not the LLC itself. This often includes:
The LLC entity remains in your control—you're just selling off what it owns. This type of deal is more common for small LLCs, especially those taxed as sole proprietorships or partnerships.
Tax implications:
In an equity sale, you sell your ownership interest in the LLC itself—not just the assets. The buyer steps into your shoes as the new owner of the entire company, including its liabilities, contracts, and tax history.
Tax implications:
Julie owns a two-member LLC taxed as a partnership. If she sells her membership interest for $500,000, she pays long-term capital gains tax on the full amount (minus her basis), except for a small portion attributed to accounts receivable and depreciated assets.
But if she sells business assets individually, the IRS may treat much of the gain—especially from receivables and equipment—as ordinary income, increasing her tax bill by tens of thousands.
When you sell your LLC, not all of the proceeds are taxed the same way. The IRS distinguishes between long-term capital gains, which are typically taxed at lower rates, and ordinary income, which is taxed at your regular income tax rate. The way your sale is structured—and how the purchase price is allocated—determines how much of each type you’ll owe.
Certain components of your sale will be taxed as ordinary income, including:
This distinction matters because ordinary income is taxed at much higher rates than capital gains.
As of 2025 (barring changes in federal law):
If you’re in the 35% tax bracket and part of your sale is taxed as ordinary income, it could more than double the tax owed on that portion compared to capital gains treatment.
If you’re approaching the one-year mark on your ownership interest or key assets, consider timing your sale so you qualify for long-term capital gains treatment. Even a few weeks’ delay could result in significant tax savings.
When you sell your LLC—especially in an asset sale—the total purchase price must be allocated across different types of assets. This allocation isn’t just an accounting exercise—it determines how much of the sale will be taxed as capital gains vs. ordinary income.
Buyers and sellers often have opposing tax interests:
Because of these differences, negotiating the allocation is a crucial part of the deal—and it needs to be agreed upon in writing.
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When a business is sold in an asset sale, both the buyer and seller must file IRS Form 8594 to report the allocation of the purchase price. This form categorizes the sale into seven asset classes (cash, inventory, receivables, tangible property, etc.), and both parties must report the same numbers to avoid IRS scrutiny.
Some quick examples of how allocation affects taxes:
Sam sold his e-commerce LLC for $750,000. Initially, the buyer proposed allocating $200,000 to inventory and equipment—which would have triggered significant ordinary income taxes for Sam. With his CPA’s help, they negotiated a revised allocation:
This shift meant a much larger portion of the sale qualified as long-term capital gain, saving Sam nearly $40,000 in taxes.
Federal taxes aren’t the only factor you’ll face when selling your LLC—state tax laws can significantly impact your net proceeds, especially if you operate in or have nexus with high-tax states. Depending on where your business is located (and where your buyers or assets are), you may owe capital gains taxes at the state level or have additional filing requirements.
If your LLC does business in multiple states (e.g., online sales, remote employees, physical offices), you may have nexus—a sufficient business presence that triggers state-level tax obligations.
Nexus can result in:
This is especially important for LLCs with remote teams or digital operations, where nexus can be created without a physical storefront.
Many sellers focus on federal capital gains tax and forget to plan for state tax exposure. Before finalizing a sale, consult with a CPA or tax attorney who understands multi-state taxation, especially if your business touches more than one state or has nexus in complex jurisdictions.
Selling your LLC doesn’t always mean collecting the entire sale price upfront. In some deals, the buyer pays you in installments over time—a structure that can also spread out your tax liability instead of triggering a massive one-time tax bill.
An installment sale is a deal in which you, as the seller, receive at least one payment after the year of the sale. This structure lets you recognize gain proportionally as you receive payments, rather than all at once.
Here’s how it works:
One of the biggest mistakes business owners make when selling their LLC is waiting too long to think about taxes. By the time the deal is signed, your options for reducing the tax bill are limited. But with proper planning—ideally months before you sell—you can structure the deal to keep more of what you earn.
Working with a CPA or tax attorney before you sign a letter of intent (LOI) gives you more flexibility to negotiate smarter terms that reduce your tax burden.
Lena was preparing to sell her LLC for $1.2 million. Her buyer wanted an asset sale, which would’ve resulted in a hefty tax bill—especially due to depreciation recapture on her equipment. After bringing in a tax advisor, they renegotiated the allocation and converted part of the deal into an installment sale. The result: $110,000 in tax savings and a smoother post-sale income stream.
Selling your LLC in 2025 can trigger a complex mix of capital gains, ordinary income, state taxes, and depreciation recapture—but with the right planning, you can significantly reduce your tax bill.
Start by understanding your LLC’s tax structure and the differences between an asset and equity sale. Then focus on optimizing the purchase price allocation, exploring installment options, and getting help from a qualified tax professional.
Before signing any deal, make sure you’ve run the numbers. The decisions you make during negotiation will directly impact how much you keep—and how smoothly the exit process unfolds.
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