Probably dumb depreciation question

[AZ-Tax]

If I have a vehicle (100% bus use) I paid $50K for on (1-1-00) and amortized over 5 yrs @ $10K per year, when I sell the vehicle on (1-1-06) for $10K, I will need to report the $10K as depreciation recapture on 06 tax return, correct?

My client sold his restuarant business (not building for client never owned building) for $170K. The cost basis ln 8 part 1 of form 6252 is $225K. Ln 5 of form 6252 is $170K. His only assets purchased were in 2007 when he started the business which was $51233 all taken in 07. Ok, the client has a $55K loss ($225K - $170K) so then do I add the $51233 depreciation recapture aganist the $55K loss and if so that comes out to a $3767 loss. Did I do that correctly?

[Maribeth]

If I have a vehicle (100% bus use) I paid $50K for on (1-1-00) and amortized over 5 yrs @ $10K per year, when I sell the vehicle on (1-1-06) for $10K, I will need to report the $10K as depreciation recapture on 06 tax return, correct?

My client sold his restuarant business (not building for client never owned building) for $170K. The cost basis ln 8 part 1 of form 6252 is $225K. Ln 5 of form 6252 is $170K. His only assets purchased were in 2007 when he started the business which was $51233 all taken in 07. Ok, the client has a $55K loss ($225K - $170K) so then do I add the $51233 depreciation recapture aganist the $55K loss and if so that comes out to a $3767 loss. Did I do that correctly?

You will need to separate the sale into its components. As I read your question, it appears that he purchased the business in 2007 for $225, of which $51233 was for equipment and the remainder of $173,767 was for goodwill? leasehold? ??

He then now sells the business for $170. He sold the equipment whose FMV at this date is ?????, and basis is zero. The remaining asset of goodwill? leasehold? ?? was sold for the difference between the FMV of the equipment and the selling price.

Can you be more specific on what your client bought and sold.

Maribeth

[AZ-Tax]

For the $170K sale price, he sold everything...

For the $170K sale price, that included all the $51233 of assets he purchased for the business so basically lock, stock and barrell.

[Maribeth]

For the $170K sale price, that included all the $51233 of assets he purchased for the business so basically lock, stock and barrell.

Yes, but he did not sell $51,233 of used equipment for $170,000. What was the rest of the sale? Goodwill? Client list? Leasehold assignment? ?????

You need that information in order to determine how to report the sale and what type of income is generated by the sale.

Also, when he purchased the business, what was the reminder of the purchase price for? Again, goodwill??? Client list?? What??

Maribeth

[S T]

Installment Sale

As Maribeth has posted, you have to take the sale and break it down by types of assets. Then I think as well, not all of the assets of the sale can be placed on the installment sale, some might have to be recognized in the year of sale.

See TTB page 6-13 to 6-16 and SB Ed Tab 27 and See Pub 537 starting around page 8

Single Sale of Several Assets
If you sell different types of assets in a single sale, you must identify each asset to determine whether you can use the installment method to report the sale of that asset. You also have to allocate part of the selling price to each asset. If you sell assets that constitute a trade or business, see Sale of a Business, later.
Unless an allocation of the selling price has been agreed to by both parties in an arm's length transaction, you must allocate the selling price to an asset based on its FMV. If the buyer assumes a debt, or takes the property subject to debt, you must reduce the FMV of the property by the debt. This becomes the net FMV.
A sale of separate and unrelated assets of the same type under a single contract is reported as one transaction for the installment method.
However, if an asset is sold at a loss, its disposition cannot be reported on the install-
ment method. It must be reported separately.

Also do not forget that form 8594 needs to be completed and attached to the tax return as well.

I would hope your tax client used a business escrow or had a purchase/sale agreement that outlined both parties agreement on the valuations of each of the assets.

Sandy