7 Questions to Ask Before Buying a New Brokerage

2026-08-21

Before buying a real estate brokerage, ask these 7 questions about taxes, fees, and structure. Avoid costly mistakes with this practical guide.

Buying a real estate brokerage is a major financial decision, and tax implications can make or break the deal. Many new owners focus on the purchase price and client lists, but overlook the tax consequences that follow. Here are 7 questions to ask before you sign, with concrete answers to help you plan.

1. What is the tax basis of the assets I’m buying?

The tax basis determines your future depreciation deductions and capital gains when you sell. Ask the seller for a breakdown of the purchase price allocated to each asset: furniture, equipment, client contracts, goodwill, and the building if included. For example, if you pay $500,000 and allocate $100,000 to equipment, you can depreciate that over 5 to 7 years. Goodwill, however, is amortized over 15 years. Get a professional valuation to support the allocation, because the IRS will scrutinize it. This week, request a preliminary asset schedule from the seller and review it with your CPA.

2. Are you buying assets or stock?

In a real estate brokerage, you typically buy assets, not stock, unless it’s a corporation. Asset purchases let you step up the basis of the assets, which increases depreciation and reduces future taxable gains. Stock purchases, on the other hand, carry over the seller’s tax basis, which may be lower, and you inherit their tax liabilities. For example, if the seller has unpaid payroll taxes, you could be liable. Ask the seller for their corporate structure and any outstanding tax liens. If they hesitate, walk away.

3. How will the purchase be structured: cash, note, or earn-out?

Your payment method affects your tax bill. Cash is straightforward: you pay now, and you get the basis. A seller-financed note spreads payments over time, but you may pay interest, which is deductible if the loan is for business purposes. An earn-out, where you pay based on future performance, is riskier for taxes because the IRS may treat it as contingent, and you might not deduct payments until they are made. For a $400,000 purchase, a note at 6% interest adds $24,000 in annual interest, which is deductible. Ask your attorney to draft the note to ensure interest is clearly stated and deductible.

4. What are the ongoing tax obligations for the brokerage?

Real estate brokerages have specific tax duties: you must collect and remit state and local sales tax on commissions, pay self-employment tax if you’re a sole proprietor, and file quarterly estimated taxes. In 2026, the self-employment tax rate is 15.3% on net earnings up to the Social Security wage base ($176,100), plus 2.9% Medicare on all earnings. Ask the seller for their last three years of tax returns to see their effective rate. Also, check if the brokerage is registered for sales tax in your state; if not, you’ll need to register immediately.

5. Are there any tax liens or unfiled returns?

Before buying, run a lien search on the business and the seller personally. Unpaid payroll taxes, property taxes, or income tax liens can attach to the business assets you buy. For example, if the seller owes $50,000 in payroll taxes, the IRS can place a lien on the business’s bank accounts, even after you buy. Ask for a certificate of good standing from the state and a tax clearance letter from the IRS. This week, order a lien search through your title company or a service like LexisNexis.

6. What is the tax treatment of the client list and goodwill?

Client lists and goodwill are intangible assets with a 15-year amortization period under IRS Section 197. If you allocate $150,000 to goodwill, you can deduct $10,000 per year. However, if the seller signs a non-compete agreement, that also has a 15-year life. Ask the seller for a non-compete clause; it protects your client list and provides a tax deduction. Make sure the purchase agreement specifies the value of each intangible, because the IRS requires it.

7. What are the state and local tax implications?

Real estate brokerages are often subject to state franchise taxes, gross receipts taxes, or business personal property taxes. For example, Texas has a franchise tax (0.375% to 0.75% of revenue), while California has an $800 minimum franchise tax. Ask the seller for their state tax filings to see what you’ll owe. Also, check if the brokerage has a physical presence in multiple states, which could trigger nexus and additional filings. This week, consult a tax advisor in your state to estimate your annual tax burden.

FAQ

Can I deduct the purchase price of a brokerage on my taxes?

No, you cannot deduct the purchase price in one year. You must depreciate tangible assets over 5 to 7 years and amortize intangibles over 15 years. For example, a $500,000 purchase with $200,000 in equipment gives you a $40,000 annual depreciation deduction for 5 years.

What happens if the seller has unpaid taxes?

If you buy assets, you are generally not liable for the seller’s unpaid taxes, but the IRS can place a lien on the assets you buy. If you buy stock, you inherit all liabilities, including tax debts. Always get a tax clearance letter before closing.

How do I handle sales tax on commissions?

In most states, real estate commissions are not subject to sales tax, but some states tax certain services. Check your state’s rules. For example, New York does not tax real estate commissions, but Hawaii does at 4%.

Should I buy the brokerage as an LLC or S-corp?

An LLC offers liability protection and pass-through taxation, but you may pay self-employment tax on all income. An S-corp lets you pay yourself a reasonable salary and take distributions, potentially saving on self-employment tax. For a brokerage with $200,000 in net income, an S-corp could save you $5,000 to $10,000 per year. Consult a CPA to decide.

The bottom line

Buying a brokerage is not just a purchase; it’s a tax event. Ask these 7 questions before you sign, and you’ll avoid surprises like unexpected liens, higher tax bills, or missed deductions. Work with a CPA and a real estate attorney to structure the deal properly. Take action this week: request the asset schedule, run a lien search, and review the seller’s tax returns. A little due diligence now can save you thousands later.