This guide is for HVAC contractor owners who are thinking about selling. It covers the U.S. Small Business Administration's (SBA) steps for valuing and selling a business. It also covers how the Internal Revenue Service (IRS) treats the sale of business assets. It ends with what happens to a contractor license in Arizona, Washington, Texas, Florida and Ohio.
This guide sums up SBA and IRS guidance and state laws. It is not tax or legal advice. SBA's guide has a section on closing a business. There it also suggests getting advice from "your lawyer and a business evaluation expert, along with other business professionals including accountants, bankers, and the IRS."
How SBA says to value a business before a sale
SBA's guide to closing or selling a business says, "Use business valuation to set a monetary value before marketing to prospective buyers." The page points readers to The Appraisal Foundation for resources on business valuation appraisals. SBA also says to "accurately value all property and real estate tied to your small business." It says this "can include intangible assets like brand presence, intellectual property, customer information, and projection of future revenue."
SBA lists these common valuation methods:
- Income approach: "Looks at projected revenue and accounts for potential risks."
- Market approach: "Compares your business to other similar businesses that have recently sold."
- Assets approach: "Subtracts total business liabilities from the total value of all assets."
We found no valuation multiples or typical sale prices for HVAC businesses in SBA's guides to selling and buying a business. We also found none in the IRS pages and publications we read. Those give rules for allocating a sale price rather than values. We did not check SBA's lender rules for change-of-ownership loans or private broker surveys.
What SBA says goes in a sales agreement
SBA says, "You must prepare a sales agreement to sell your business officially." It says the document "allows for the purchase of assets or stock of a corporation." SBA adds, "An attorney should review it to make sure it's accurate and comprehensive."
SBA says to list all inventory in the sale, along with the names of the seller, buyer and business. It says to decide how the business will be run before closing. It also says to decide how much access the buyer will have to your information. SBA also says to "note all adjustments, broker fees, and any other aspects relevant to the terms of agreement." It warns, "Don't leave out any assets and liabilities, or this can create problems even after the sale has been finalized."
The IRS describes a sale of business assets differently from a sale of corporate stock. The tax section below explains the difference.
Ways SBA describes to transfer ownership
SBA's guide lists these options for transferring a business:
| Option | What SBA says |
|---|---|
| Outright sale | "By selling a business in full, you will transfer ownership immediately and receive payment right away." |
| Gradual sale | "This option often benefits individuals that can't afford an outright sale, but instead are able to finance a long-term payment plan." |
| Lease agreement | "By transferring your business ownership through a lease, you'll commit to a contract that details the conditions and payments you'll receive for the temporary rights to the business." |
From SBA's close-or-sell guide (undated).
For how the IRS treats payments received after the year of a sale, see the installment sale section below.
SBA 7(a) loans for a change of ownership
SBA's 7(a) loan page lists "changes of ownership (complete or partial)" among the uses of 7(a) loans. As of October 2026, the page said, "The maximum loan amount for a 7(a) loan is $5 million." It also says, "You will always work directly with your lender and not with SBA."
Licenses and permits for the buyer
SBA's guide to buying an existing business tells buyers, "You'll need to get any needed licenses and permits from the current owner or apply for them yourself." Arizona law says its contractor license can't be transferred. The license section below covers all five states. It explains what each state's law says when ownership changes or the license holder leaves.
How the IRS taxes the sale of a business
The IRS last reviewed or updated its sale of a business page on February 10, 2026. The page says, "The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold." It adds, "Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss."
The IRS says business assets must be classified into four groups. Two are capital assets and depreciable property used in the business. The other two are real property used in the business and property held for sale to customers, such as inventory. The IRS says the gain or loss on each asset is figured separately:
- "The sale of capital assets results in capital gain or loss."
- "The sale of real property or depreciable property used in the business and held longer than 1 year results in gain or loss from a section 1231 transaction."
- "The sale of inventory results in ordinary income or loss."
The same page covers a sale of corporate stock: "Your interest in a corporation is represented by stock certificates. When you sell these certificates, you usually realize capital gain or loss."
IRS Publication 544 (2025) says, "A gain on the disposition of section 1245 property is treated as ordinary income to the extent of depreciation allowed or allowable on the property."
The IRS last reviewed or updated its closing a business page on July 21, 2026. The page lists forms for a sole proprietor. They include Form 4797, Sales of Business Property, "for each year you sell or exchange property used in your business." They also include Form 8594 "if you sell your business." The page's lists for partnerships and corporations also name Form 8594 if you sell your business.
Form 8594 and the residual method
The IRS says, "The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset." It says both the buyer and the seller "must use the residual method to allocate the consideration to each business asset transferred." Assets exchanged under nontaxable exchange rules are the exception. The IRS says this method determines the gain or loss on each asset. It sets how much of the consideration is for goodwill and certain other intangible property. It also determines the buyer's basis in the business assets.
The Instructions for Form 8594 (Rev. November 2021) set the order. The consideration is reduced by the amount of Class I assets before anything else. The rest goes to Class II, III, IV, V and VI assets in that order. Within each class, it is allocated in proportion to the assets' fair market values on the purchase date. Consideration is then allocated to Class VII assets. The instructions add, "The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date."
| Asset class | What the IRS says it includes |
|---|---|
| Class V | "Furniture and fixtures, buildings, land, vehicles, and equipment that constitute all or part of a trade or business are generally Class V assets." (Publication 544) |
| Class VI | Section 197 intangibles other than goodwill and going concern value. The Form 8594 instructions say these include workforce in place; business books and records, operating systems, or any other information base, process, design, pattern, know-how, formula, or similar item; any customer-based intangible; any supplier-based intangible; any license, permit or other right granted by a government unit; any covenant not to compete entered into in connection with the acquisition of an interest in a trade or a business; and any franchise, trademark or trade name. |
| Class VII | "Goodwill and going concern value" (Publication 544) |
From IRS Publication 544 (2025) and the Instructions for Form 8594 (Rev. November 2021). Classes I through IV are not shown.
Publication 544 says the buyer and seller may make a written agreement. It can set how to allocate the consideration or the fair market value of any asset. It says, "This agreement is binding on both parties unless the IRS determines the amounts are not appropriate."
The Form 8594 instructions say, "Generally, both the purchaser and seller must file Form 8594 and attach it to their income tax returns." That rule applies when a group of assets making up a trade or business is transferred. The buyer's basis must also be one that "is determined wholly by the amount paid for the assets." The instructions also say, "If you do not file a correct Form 8594 by the due date of your return and you cannot show reasonable cause, you may be subject to penalties."
Installment sales and the year a gain is taxed
IRS Publication 537 (2025) says, "An installment sale is a sale of property where you receive at least one payment after the tax year of the sale." If you realize a gain, it says you may be able to use the installment method. That lets you report part of the gain as you receive each payment. The IRS says you can't use the installment method to report a loss. It also says you can choose to report all of your gain in the year of sale.
Publication 537 also says, "The sale of inventories of personal property can't be reported on the installment method. All gain or loss on their sale must be reported in the year of sale, even if you receive payment in later years."
Publication 544 adds a rule for depreciation recapture. It says, "If you report the sale of property under the installment method, any depreciation recapture under section 1245 or 1250 is taxable as ordinary income in the year of sale. This applies even if no payments are received in that year."
What the IRS says an ESOP is
The IRS defines an employee stock ownership plan (ESOP) as a "section 401(a) qualified defined contribution plan that is a stock bonus plan or a stock bonus/ money purchase plan." It says an ESOP "must be designed to invest primarily in qualifying employer securities." We read only the IRS definition page. We did not check how an ESOP works as a way to sell a contracting business.
What happens to an HVAC contractor license when you sell
The state laws below cover contractor licenses and registrations. They say what happens when ownership changes or the key license holder leaves.
| State | What the law says about the license | When the license holder or qualifier leaves |
|---|---|---|
| Arizona | "The license is nontransferable" (A.R.S. 32-1124) | Notify the Registrar in writing within 15 days and qualify through another person within 60 days (A.R.S. 32-1154) |
| Washington | A contractor that changes its business structure must apply for a new registration and pay the fee (WAC 296-200A-050) | For an electrical contractor license, the license is void within 90 days unless another master electrician or administrator is qualified. The limit is 180 days if that person dies or is incapacitated (RCW 19.28.061) |
| Texas | A license holder may assign the license to only one permanent office of one contracting company (Occupations Code 1302.251) | A company that does not employ an assigned license holder when a contract is signed and when the services are performed may not collect a fee or enforce the contract (1302.252) |
| Florida | A person contracting through a business organization applies as its qualifying agent (Fla. Stat. 489.119) | If the only qualifying agent leaves, the business has 60 days to employ another. Until then it may not contract, except to finish incomplete contracts under a temporary certificate (Fla. Stat. 489.119) |
| Ohio | Licenses are issued in an individual's name and assigned to the contracting company that employs the individual (R.C. 4740.07) | The assignment is invalid 90 calendar days after the contractor's death, 90 calendar days after the contractor completes a change of company form, or earlier by agreement (R.C. 4740.07) |
From state statutes and rules.
Arizona
Arizona's Registrar of Contractors (ROC) licenses a business through a qualifying party. Its license classifications page covers a sole proprietorship, partnership, limited liability company or corporation. It says these businesses "may apply for a contractor's license if they have a regularly employed person with the necessary experience, knowledge and skills who serves as the qualifying party."
A.R.S. 32-1124 says, "The license is nontransferable, and satisfactory evidence of possession shall be exhibited by the licensee on demand." The same law says the registrar may suspend a license by operation of law if the licensed entity is dissolved. It says dissolution "includes the death of a sole owner, a change to the partnership by either adding or removing a partner, the revocation or dissolution of corporate authority or the dissolution of a limited liability company or limited liability partnership."
A.R.S. 32-1154 lists grounds for suspending or revoking a license. One ground is failing to tell the registrar in writing within 15 days when the person who qualified for the license disassociates. The statute says, "The licensee must qualify through another person within sixty days after the date of disassociation." ROC's licensing forms page covers its Notice of Disassociation/Resignation form, RC-L-305. It says the form must be received within 15 days. If the licensee does not requalify within 60 days, ROC says "the license will be automatically suspended until a new Qualifying Party is approved by the Registrar."
A.R.S. 32-1125 covers licensees that are exempt from the qualifying-party requirement. After a hearing, the registrar may require such a licensee to get a qualifying party within 60 days. It can do so if it finds that "a transfer of ownership of fifty percent or more of the stock, if applicable, or beneficial interest, in the licensee has occurred." A.R.S. 32-1127 says a qualifying party is responsible for the licensee's violations "for licensure regulatory purposes." It adds that this subsection "does not impose personal liability on the qualifying party for a licensee's violation of this chapter."
Washington
Washington's Department of Labor & Industries (L&I) says, "Washington State requires all construction contractors to register with L&I. State law also requires construction contractors to be bonded and insured to protect the public."
Under WAC 296-200A-050, a contractor that changes its business structure must apply for a new registration and pay the registration fee. The rule gives examples: "from a partnership to a corporation or if the partners in a partnership change." It says, "Failure to reregister after a change in business structure may invalidate the contractor's registration."
A business may also hold a Washington electrical contractor license. In that case, RCW 19.28.061 says, "If the relationship of the master electrician or administrator with the electrical contractor is terminated, the contractor's license is void within ninety days unless another master electrician or administrator is qualified by the board." If that person dies or is otherwise incapacitated, the statute allows 180 days. We did not check L&I's website for a page specific to selling a contracting business.
Texas
Texas Occupations Code 1302.251 says, "A person holding an air conditioning and refrigeration contractor license may assign that license to only one permanent office of one air conditioning and refrigeration contracting company." Section 1302.252 says a contracting company "must employ full-time in each permanent office a license holder who holds an appropriate license assigned to that company."
Some companies do not employ such a license holder when a contract is signed and when the services are performed. The law says such a company "may not collect a fee or otherwise enforce the contract." We did not check the Texas Department of Licensing and Regulation's rules on reporting a change of company.
Florida
Fla. Stat. 489.119 covers applicants who plan to contract as a business organization, "including any partnership, corporation, business trust, or other legal entity." Such an applicant must apply as the qualifying agent of that business. An individual may plan to contract in his or her own name, or as a sole proprietorship under a fictitious name. In that case, registration or certification "may be issued only to that individual."
Some businesses have only one certified or registered contractor affiliated with them, and that person is the qualifying agent. The statute says such a business must notify the department. The business "shall have 60 days from the termination of the qualifying agent's affiliation with the business organization in which to employ another qualifying agent." Until then, the business may not engage in contracting unless it gets a temporary certificate or registration that can't be renewed. The temporary certificate goes to the financially responsible officer, the president or a partner. In a limited partnership, it goes to the general partner. It "shall only allow the business organization to proceed with incomplete contracts."
We did not check the Florida licensing department's website for a change-of-qualifier page.
Ohio
Ohio Revised Code 4740.07 covers how the Ohio Construction Industry Licensing Board issues licenses. It says the board issues them "in the name of the individual who meets the requirements of section 4740.06 of the Revised Code." Applicants must ask that the license be assigned to the contracting company that employs them. If the individual meets the requirements, the board assigns the license and issues one in the company's name. An unassigned license is placed in inactive status.
The contractor who assigned the license may leave the company for any reason, including death. If so, the contractor or company must notify the board immediately. The assignment becomes invalid "ninety calendar days after the death of the contractor." It also becomes invalid 90 calendar days after the contractor completes a change of company form. The company and contractor can agree to an earlier time.
An Ohio Department of Commerce page dated February 28, 2025 says, "Note: residential contractors are not required to be licensed in Ohio." Our HVAC licensing guide covers how each of the five states licenses contractors and technicians.
To look up a contractor's license, see our guide to checking an HVAC contractor's license. For wage and job projection data in the trade, see our guides to HVAC technician pay and the HVAC job outlook.