You spent years building the business. The sale may be the largest taxable event of your life. And in New Jersey, the state’s cut surprises almost every seller.
Here is why. New Jersey taxes your gain as ordinary income — there is no lower capital-gains rate. Above $1 million of income, the rate is 10.75%.
This guide walks the deal in order: structure, the federal bill, the New Jersey bill, and the C-9600 notice. That last filing can delay your closing. Every figure below is sourced to the IRS, the U.S. Code, or the State of New Jersey.
Asset sale vs. stock sale: the choice that drives everything
Most deals start with one question: is the buyer purchasing assets or equity? That choice sets the character of your gain, the forms you file, and the timing of the tax.
Asset sale: section 1060 allocation and Form 8594
In an asset sale, the price does not attach to the business as a whole. Federal law spreads it across asset classes under IRC section 1060 using the residual method. Both you and the buyer must report the same split on Form 8594.
That allocation decides how each dollar is taxed:
- Equipment and other depreciated property. Gain up to your prior depreciation is ordinary income under IRC section 1245 — not capital gain.
- Inventory and receivables. Generally ordinary income.
- Goodwill and going-concern value. Generally capital gain, and usually the most seller-friendly bucket.
Buyers push for allocations that give them fast write-offs. Sellers want goodwill. Negotiate the Form 8594 split inside the purchase agreement — not after closing.
Stock or interest sale: simpler, but buyers resist
Selling the stock or LLC interests is usually one capital gain on your equity. There is no asset-by-asset allocation. There is no section 1245 recapture on your personal return.
Buyers often resist this structure. They inherit the entity’s history and get no fresh write-offs.
That tension shows up in the price, so model both structures after tax before you sign. Our business tax return team runs those side-by-side projections.
The federal bill: 20% is the headline, not the whole story
For 2026, the top federal long-term capital-gains rate is 20%. It applies above $613,700 of taxable income for joint filers and $545,500 for single filers under Rev. Proc. 2025-32. Below those lines, the rate is 15% or 0%.
Two add-ons change the math:
- The 3.8% Net Investment Income Tax. It applies above $250,000 of modified AGI for joint filers, or $200,000 for single filers, per the IRS NIIT rules. Those thresholds are not indexed for inflation.
- Depreciation recapture. Section 1245 recapture is taxed at ordinary federal rates, not 20%. After the bonus-depreciation era, a heavily written-off asset sale can carry a large ordinary-income slice.
The 10.75% problem: New Jersey taxes your gain as ordinary income
Here is the part sellers rarely see coming. New Jersey’s Gross Income Tax has no capital-gains rate. Your gain lands in the net gains from disposition of property category and runs through the same brackets as wages.
New Jersey also does not distinguish short-term from long-term gains. Hold the company for 20 years or 20 months — same rate.
The top bracket is 10.75% on income over $1,000,000, in place since tax year 2020. A mid-seven-figure exit puts most of the gain in that bracket.
Illustrative example — results vary: on gain above the $1 million line, each extra $100,000 could carry roughly $10,750 of New Jersey tax. That stacks on top of the federal bill.
For high-income sellers in Bergen County towns like Alpine, Franklin Lakes, and Saddle River, the math is stark. It is what makes pre-LOI tax planning worth the effort.
The C-9600 trap: New Jersey’s bulk sale notice can delay your closing
New Jersey’s bulk sale law protects the state’s ability to collect tax when business assets change hands. The statute puts the burden on the buyer. Notify the Division of Taxation before closing, or inherit the seller’s unpaid New Jersey taxes under N.J.S.A. 54:50-38.
The mechanics trip up deal teams:
- The buyer files Form C-9600 with a copy of the sale contract.
- The statute says 10 days. The Division’s published standard is stricter: it must receive the package at least 10 business days before closing.
- Delivery counts only by registered, certified, or overnight mail, or express courier.
- The Division responds within 10 business days — often by directing an escrow held back from the sale proceeds.
Read that timeline again. A late filing does not just create risk for the buyer. It pushes your closing date.
The escrow also comes out of your proceeds at the table. Build the C-9600 dates and the escrow mechanics into the purchase agreement from the first draft. Deal attorneys handle the filing; your CPA should project the escrow so it does not blindside you.
Installment sales: spreading the gain — and the recapture exception
If at least one payment arrives after the year of sale, IRC section 453 applies the installment method by default. You report gain as payments arrive, on Form 6252, using your gross-profit ratio. You can also elect out and report everything in year one.
Spreading gain can matter in New Jersey. Keeping each year’s income below the $1 million line could potentially keep gain out of the 10.75% bracket. New Jersey reports installment gains in the same year as the federal return.
One exception defeats the deferral: depreciation recapture. That ordinary income is taxed in full in the year of sale, even on an installment deal. On a heavily depreciated asset sale, year one can cost far more than the note schedule suggests.
Where the NJ BAIT fits in the exit year
If your pass-through entity sells its assets, the gain is entity income. New Jersey’s elective BAIT taxes distributive proceeds at the entity level, and the statutory definition expressly includes gains. The entity payment is federally deductible — that is the whole point of the workaround.
BAIT rates run from 5.675% to 10.9%, with the top bracket above $1 million of distributive proceeds. In an asset-sale exit year, the election can shift a very large state payment into a deductible entity expense.
Structure decides whether that works. An asset sale inside the entity flows into the BAIT base. Selling your membership interest or stock personally generally does not — that gain is your own Gross Income Tax item.
Get a read on whether a BAIT election fits your exit year before the structure is locked.
Where QSBS and ING trusts fit
Two more planning doors open — or close — based on structure and timing:
- QSBS. In a C-corporation stock sale, the federal exclusion under IRC section 1202 may shelter some or all of the gain. New Jersey’s treatment of those gains also changed for 2026. Our guide to QSBS and New Jersey tax in 2026 covers the conformity law, the OBBBA tiers, and timing traps.
- ING trusts. Sellers staring down the 10.75% rate often ask about incomplete-gift non-grantor trusts. Our ING trusts and New Jersey tax guide covers where New Jersey actually stands on INGs — and when they help.
- Timing. Neither move works retroactively. QSBS runs on acquisition dates and holding periods, and trust planning takes time to set up. Both belong in the conversation years before the LOI when possible.
Five moves before you sign the letter of intent
- Model both structures after tax. Compare asset vs. stock at the net-proceeds line, not the headline price.
- Negotiate the Form 8594 allocation now. Put the asset-class split in the purchase agreement.
- Calendar the C-9600 window. Ten business days, received — certified or overnight mail only.
- Decide the BAIT question early. The election’s value in the exit year depends on the structure.
- Screen for IRC section 1202 and trust planning. These run on multi-year clocks, so check them first, not last.
How ProAxis helps New Jersey business sellers
ProAxis is a licensed New Jersey CPA firm based in Bergen County. Owners in similar situations often ask us to:
- Project the federal and New Jersey bill under each deal structure
- Work the Form 8594 allocation with the deal attorneys
- Time a BAIT election for the exit year
- Plan installment terms around the recapture rules and the $1 million bracket
- Coordinate C-9600 escrow mechanics so closing stays on schedule
Structure questions are decision questions, and no article can answer them for your deal. If a sale is on the horizon, schedule a free consultation.
Selling the house and leaving the state too? Read how the NJ exit tax and mansion tax really work.
Frequently Asked Questions
Does New Jersey tax capital gains from selling a business at a lower rate?
No. New Jersey taxes gains as ordinary income under the Gross Income Tax. There is no preferential capital-gains rate and no short-term versus long-term distinction. The top rate is 10.75% on income over $1,000,000, in place since tax year 2020.
What is Form C-9600 and who files it?
Form C-9600 is New Jersey’s bulk sale notice to the Division of Taxation, filed by the buyer — not the seller. The Division must receive it, plus a copy of the sale contract, at least 10 business days before closing. Delivery counts only by registered, certified, or overnight mail, or express courier. A buyer who skips it becomes liable for the seller’s unpaid New Jersey taxes.
Is an asset sale or a stock sale better for the seller?
Sellers usually net more from a stock sale: one capital gain on the equity, no depreciation recapture. Buyers usually prefer an asset sale for the stepped-up write-offs, and often pay more to get it. In an asset sale, IRC section 1060 splits the price across asset classes on Form 8594. Section 1245 recapture then turns part of the gain into ordinary income.
Can I spread the tax with an installment sale?
Often, yes — IRC section 453 spreads the gain across payments when at least one arrives after the year of sale. You report it on Form 6252, and New Jersey follows the federal timing. One exception: depreciation recapture is taxed in full in the year of sale, even on an installment deal. Spreading gain may also keep each year under New Jersey’s $1,000,000 top-bracket line.
Does the NJ BAIT apply when I sell my business?
It can — if a pass-through entity sells its assets, the gains count as “distributive proceeds” in the NJ BAIT base. BAIT rates run from 5.675% to 10.9% at the entity level, with the top bracket above $1 million. Selling your stock or membership interest personally generally stays on your own Gross Income Tax return instead. Structure decides whether the BAIT federal-deduction workaround is available in the exit year.
How much federal tax will I pay on selling my business in 2026?
For 2026, the top federal long-term capital-gains rate is 20%. It starts above $613,700 of taxable income for joint filers and $545,500 for single filers. The 3.8% Net Investment Income Tax applies above $250,000 of modified AGI for joint filers ($200,000 single). Depreciation recapture under IRC section 1245 is taxed at ordinary rates in the year of sale.
This article is general information for New Jersey business owners considering a sale. It is not tax advice and does not create a CPA-client relationship. Deal structures, rates, and rules change and apply differently to each situation. Figures are current as of the date above. They are sourced to the IRS, the U.S. Code, and the State of New Jersey. Confirm your specifics with a licensed CPA before you act.