Now, let's follow the tragic numbers. Here's how you figure the tax cost for the $1 million price: 1) [Sam] must earn $1,666,000 (rounded) and pay $666,000 in income tax (40 percent X $1,666,000). So, Sam has exactly $1 million left, which he pays to [Joe]. 2) Then Joe must pay $150,000 in capital gains tax (at 15 percent) on his $1 million sales price. Sad, but Joe only has $850,000 left after taxes. Amazing!