Built-In Gains Tax Calculator 2026 — S-Corp §1374 BIG
Calculate Built-In Gains (BIG) tax when a C corporation converts to S corporation. Determine tax owed during the 5-year recognition period and the savings from waiting past year 5.
$
$
$
$
$
$0
BIG Tax at Entity Level (21%)
$0
Recognized Built-In Gain
$0
Gain to Shareholders (After BIG)
$0
Tax Saved by Waiting Past Year 5
BIG Tax Calculation Summary
How Built-In Gains Tax Works
When a C corporation converts to an S corporation, any assets that were appreciated at conversion carry a "built-in gain." If those assets are sold within 5 years of the S election, the S corporation pays a 21% corporate-level BIG tax on the gain, in addition to the shareholders paying LTCG tax on the remaining passed-through gain. After the 5-year recognition period, no BIG tax applies.
The Formula
Net Unrealized BIG = FMV at Conversion - Basis at Conversion
Recognized BIG = min(Actual Gain, Net Unrealized BIG remaining)
Taxable Income Cap = min(Recognized BIG, S-Corp Taxable Income)
BIG Tax = Taxable Income Cap x 21%
Remaining Gain to Shareholders = Total Gain - Recognized BIG + (Recognized BIG - BIG Tax)
Recognized BIG = min(Actual Gain, Net Unrealized BIG remaining)
Taxable Income Cap = min(Recognized BIG, S-Corp Taxable Income)
BIG Tax = Taxable Income Cap x 21%
Remaining Gain to Shareholders = Total Gain - Recognized BIG + (Recognized BIG - BIG Tax)
Example
Asset: FMV $800K, Basis $300K at conversion. Sale in Year 4 for $950K:
Net unrealized BIG: $800K - $300K = $500K
Actual gain: $950K - $300K = $650K
Recognized BIG: min($650K, $500K) = $500K
BIG tax: $500K x 21% = $105,000
Remaining gain to shareholders: $650K - $500K + $395K = $545K at LTCG rate
Net unrealized BIG: $800K - $300K = $500K
Actual gain: $950K - $300K = $650K
Recognized BIG: min($650K, $500K) = $500K
BIG tax: $500K x 21% = $105,000
Remaining gain to shareholders: $650K - $500K + $395K = $545K at LTCG rate
Sources and References (click to expand)
Extended
5-Year Holding Period Strategy Calculator
Compare tax with BIG vs after year 5 exemption. Multi-asset table, SVG timeline chart
$
$
%
Tax by Sale Year — BIG Recognition Period vs Post-Period
| Sale Year | Sale Price | BIG Tax (21%) | Shareholder LTCG | Total Tax | After-Tax Proceeds |
|---|
After-Tax Proceeds by Year of Sale
Multi-Asset BIG Aggregation Table
| Asset | FMV at Conversion | Basis | Built-In Gain | BIG Tax (21%) |
|---|
Frequently Asked Questions
What is the Built-In Gains tax and when does it apply?
The Built-In Gains (BIG) tax under IRC Section 1374 applies when a C corporation elects to convert to S corporation status and then sells appreciated assets within the recognition period. The BIG tax is meant to prevent C corps from avoiding the double tax (corporate + shareholder) by converting to S corp status just before selling appreciated assets. The tax equals 21% (the corporate rate) on the lesser of the net recognized BIG or the net unrealized BIG at the time of conversion.
How long is the BIG tax recognition period?
The recognition period is 5 years from the date the S election is effective. Any assets sold or disposed of within those 5 years that were appreciated at the conversion date are subject to BIG tax. After 5 full years, the recognition period ends and no BIG tax applies, even if the assets are sold at a large gain. The strategy of waiting just past the 5-year mark can save significant tax.
How is the BIG tax calculated?
The BIG tax equals 21% x the lesser of: (1) the net recognized built-in gain for the year (actual gain on the sale of assets that were appreciated at conversion), or (2) the taxable income of the S corporation for the year computed as if it were a C corporation. In addition, there is an overall limitation: the recognized BIG cannot exceed the net unrealized BIG at conversion minus any BIG recognized in prior years. The S corporation pays this tax at the entity level, reducing the gain passed through to shareholders.
Can BIG tax be reduced or avoided?
Yes. Strategies include: (1) Waiting until the 5-year recognition period expires before selling appreciated assets. (2) Using the net unrealized BIG limitation — if prior year losses reduced BIG, the remaining BIG cap may be lower. (3) Installment sales that spread gains across the recognition period and beyond. (4) Selling assets with built-in losses to offset built-in gains. (5) Depreciation deductions and other deductions can reduce taxable income, limiting the BIG tax under the taxable income cap.
Does the BIG tax apply to all S corporations?
No. The BIG tax only applies to S corporations that converted from C corporation status. Corporations that have always been S corporations (never a C corp) are not subject to BIG tax. Also, certain assets are excluded from BIG, including cash, accounts receivable (cash-basis taxpayers), inventory if the FIFO method is used under specific conditions, and installment obligations reported under the installment method.