Small Business/Seller Financing in Jeopardy

President Clinton is about to sign a tax bill that would, in effect, eliminate a provision used by sellers of small busineses to defer capital gains for tax purposes until the seller receives the money.

Seller financing is a traditional method to buy businesses and real estate. Once the bill is signed into law, businesses would be required to pay the tax on all gains during the first year of the sale.

Depending on the situation, this could mean, for example, that a seller may pay more in taxes than received in cash payments during the first year.

To ascertain the effect, the Treasury Department believes the change will generate $1.8 billion in tax revenue income over the first five years.

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