1245 or 1250 property?

[NotEasy]

Taxpayer sold a LLC (a restaurant) in 2010. The goodwill, equipments, leasehold improvement, liquor license, trade name and convenant not to compete are all priced individually in the escrow statement. I am thinking:

Equipments = 1245 property
Leasehold improvement = 1250 property
Goodwill = 1250 property
Liquor license = 1250 property
Trade name = 1250 property
Covenant not to compete = 1250 property

Am I correct?

[jimenright]

Section 1250 Property is

depreciable real property. Using that criteria, it looks to me like all of it is section 1245 if it was depreciated. If it was not depreciated, it is neither. I expect that only the equipment was depreciated and is not real property, thus it is sect 1245. The rest probably is neither.

[Maribeth]

Taxpayer sold a LLC (a restaurant) in 2010. The goodwill, equipments, leasehold improvement, liquor license, trade name and convenant not to compete are all priced individually in the escrow statement. I am thinking:

Equipments = 1245 property
Leasehold improvement = 1250 property
Goodwill = 1250 property
Liquor license = 1250 property
Trade name = 1250 property
Covenant not to compete = 1250 property

Am I correct?

My first impression is as follows:
Equipment - sold at a gain §1245; sold at a loss §1231
Leasehold improvements - sold at a gain §1250; sold at a loss §1231
Goodwill - capital gain
Liquor license - capital gain
Trade name - capital gain
Covenant not to compete - ordinary income

Maribeth

[dsi]

Point of clarification: did your client sell the LLC? or the assets belonging to the LLC?

If the LLC was sold, was it a disregarded entity? corp?

[Burke]

The goodwill, equipments, leasehold improvement, liquor license, trade name and convenant not to compete are all priced individually in the escrow statement.

Just make sure both the buyer and the seller have a copy of IRS Form 8594 completed and attached to their tax returns, to establish how the individual assets of the sale are treated. Covenant Not to Compete agreement must be attached.

[NotEasy]

Point of clarification: did your client sell the LLC? or the assets belonging to the LLC?

If the LLC was sold, was it a disregarded entity? corp?

Sorry for the delay to reply.

The whole LLC was sold.

And it was not a disregarded entity. A LLC tax return had been filed every year.

[NotEasy]

My first impression is as follows:
Equipment - sold at a gain §1245; sold at a loss §1231
Leasehold improvements - sold at a gain §1250; sold at a loss §1231
Goodwill - capital gain
Liquor license - capital gain
Trade name - capital gain
Covenant not to compete - ordinary income

Maribeth

Thank you.

I use Drake tax program. I have been trying to figure out how to tell the program to carry the gain of Goodwill, Liquor license and Trade name to the Schedule D as capital gain.

Does anyone here also use Drake and know how it can be done?

[taxmom34]

just a thought, but wouldn't "goodwil, trade name, & covenant" all be considered "intangibles" therefore going directly to schedule D?

[Burke]

They are all Section 197 intangibles, but only goodwill and trade name get cap gains treatment. CNTC is reported as ordinary income. I don't use Drake, so not sure of the mechanics, but you can input each asset class amount directly on the proper schedule or worksheet.