Goodwill & Bankruptcy

[tpnl]

Taxpayer filed bankruptcy on a business that she was buying with a land contract (original contract included building, equipment and goodwill). All property went back to land contract holder. When the business was originally purchased, goodwill was part of the contract. Can the rest of the amortization left on the goodwill be taken as a deduction, since it was essentially disposed of? What about equipment my taxpayer bought and "abandoned"? Per the bankruptcy agreement, all improvements and equipment went back to the land contract holder as part of the bankruptcy agreement.

Set-up fees were also amortized. Can those be deducted since the business was "disposed"?

[Snaggletooth]

Yes, Mostly

I believe unamortized Goodwill and Setup can effectively be taken, but first added to basis. And then the basis gets deducted as an integral part of a capital loss, subject to the $3000 annual maximum.

I feel differently about equipment, not in theory, but it's hard to imagine equipment being "abandoned." I don't know what your client is telling you, but it's hard to imagine equipment just being left to rust in the weather, without being stolen, unless there is a lien on it. A lien would add another layer of discussion to your situation.

[JON]

First

record the gain or loss (offset to assets)-debit contract for deed remaining balance and credit the assets - land, building and if anything left go against goodwill. Bankruptcy may eliminate any adjustments giving a taxable loss.