Because your basis carries over, and most physicians who built their practice have a basis near zero. When the rollover equity is sold, nearly all of it is gain. By then you are usually a W-2 employee rather than an active owner, so the 3.8 percent net investment income tax generally applies. The estimate assumes the rollover is worth exactly what it was valued at in the deal, which is optimistic; it can be worth less, or nothing.
" - q: "Why is the holdback shown separately?" a: "Escrowed money is usually paid a year or two later, if no problems turn up. It is taxable when you receive it, generally with the same character as the rest of the price. The calculator shows your cash both with and without it so you can see what you have at closing versus what you may have later.
" - q: "Does the calculator handle an earnout or a seller note?" a: "Not separately. Treat an earnout like a holdback for a rough view. Earnouts and notes bring their own rules: imputed interest that is ordinary income, possible recharacterization as compensation if tied to your employment, and the Section 453A interest charge above $5 million of installment obligations. See earnouts and installment sales.
" - q: "Why are the goodwill and ordinary allocations separate inputs?" a: "Because that split is the single largest thing you can influence. The purchase price allocation on Form 8594 decides whether a dollar is taxed at 20 percent or 37 percent. Enter what the term sheet proposes, then enter what you would ask for, and compare the two results.
" - q: "Why does the calculator not show what my rollover might be worth at the second bite?" a: "Because any number we showed would be a projection, and projections of private equity outcomes are not something an investment advisor should put in a calculator. Recapitalizations fell from about 100 a year in 2021 and 2022 to 13 in 2024, and hold periods are now 8 to 10 years. Plan your household as if the rollover were worth zero and treat anything above that as a good surprise. See is the second bite real.
" - q: "Is my state rate really the top rate on the whole gain?" a: "Close to it for most sellers. California and New York tax capital gains as ordinary income and their top brackets begin well below a typical practice sale price, so the top rate is a fair estimate. Low six-figure sales would be taxed at lower marginal rates, and the calculator overstates the tax in that case.
" llms_summary: "Interactive calculator that estimates a physician's after-tax cash from a private equity practice sale. Inputs: headline price, rollover percentage, holdback percentage, banker and legal fees, practice debt, allocations to non-compete, consulting or transition pay, accounts receivable, equipment depreciation recapture, tax basis, state (CA, NY, NYC, TX, FL, other), and whether the seller materially participated (NIIT). Applies 2026 federal rates: 20% long-term capital gain, 37% ordinary, 3.8% NIIT, 0.9% additional Medicare on transition pay. Shows cash at closing, cash including holdback, effective tax on the taxable portion, and the deferred tax embedded in rollover equity. Explicitly does not project rollover value or model installment timing, AMT, or lower brackets." ---It does one job: it shows how the words in the allocation and the size of the rollover change your cash. It applies the 2026 top federal rates because a practice sale places almost every seller in the top capital gains band and the top ordinary bracket. It treats the holdback as taxable when paid and shows your position with and without it. It applies your state's top rate to the full taxable amount, which is a fair estimate for a sale above a million dollars and an overstatement for a small one.
It does not model the tax brackets below the top, the alternative minimum tax, the phase-down of the state tax deduction (it assumes you get no federal benefit from state tax, which is close to right in a sale year), a pass-through entity tax election, the timing of installment payments, imputed interest, the Section 453A interest charge, Section 1374 built-in gains tax on a young S corporation, or a C corporation's second layer of tax. Each of those can move the number by five or six figures. Each has its own page on this site, and each needs your CPA.
It does not project what the rollover equity will be worth. Any number we showed would be a guess dressed up as math. The deferred tax line assumes the rollover is worth exactly its deal value, which is the optimistic case.
Use the allocation in the letter of intent or the buyer's term sheet. If the LOI is silent on allocation, that itself is something to fix before signing.
Move dollars from the non-compete and consulting lines to goodwill. Watch the federal tax line. Every $100,000 moved saves roughly $17,000 of federal tax at 2026 rates, before state tax and payroll tax.
A higher rollover lowers the tax today and raises the amount riding on the second bite. Neither is free. Read rollover equity before you decide the percentage is not negotiable.
If you are considering a move, compare your current state with the destination. Then read the state pages, because the move only helps some of the price and only if it is complete before the sale.
If your share is above roughly $3 million, if you are a C corporation, if your S election is under five years old, if the deal includes an earnout or seller note, or if you are moving states, the calculator will get you within sight of the number but not to it. That is where a coordinated review by your CPA, your transaction attorney, and a planner who has modeled the household side of these deals earns its cost. The case study shows what that looked like for one dermatology partner, and the contact page explains how a term-sheet review works.