Partnership sold on installment sale ?

[Twin Turbo Z]

Have a small business partnership (2 member) that was sold on installment sale. Basically the buyer is purchasing the business equipment and that is it. The new buyer will be filing a schedule c and will not be using the old business name. The sales price was $25000 and the buyer is paying $1000 per month until its paid off (25 months interest free). Im trying to figure how to handle the sale. Im thinking I should 6252 all the equipment and continue the partnership till its paid off, then end the partnership (even though they are not in business). Am I correct ?

[JON]

No installment sale on 1245 property

Partnership probably stays open, but makes little difference if the entire gain is taxed in the final year. Interest is deemed paid so that should be included, and would a least defer the income reporting on the interest until the cash is received.

[Twin Turbo Z]

Partnership probably stays open, but makes little difference if the entire gain is taxed in the final year. Interest is deemed paid so that should be included, and would a least defer the income reporting on the interest until the cash is received.

Zero interest paid or to be paid. So your saying "no installment sale on equipment"? Just claim payments as income. I figure the 1065 should stay open till the final payment just in case buyer backs out and stops payments. Which in that case they would just liquidate the equipment and do a final 1065.

[spanel]

Zero interest paid or to be paid. So your saying "no installment sale on equipment"? Just claim payments as income. I figure the 1065 should stay open till the final payment just in case buyer backs out and stops payments. Which in that case they would just liquidate the equipment and do a final 1065.

look up "imputed interest". TTB 3-19.

You cant have an installment sale with no interest.

Chris

[Twin Turbo Z]

look up "imputed interest". TTB 3-19.

You cant have an installment sale with no interest.

Chris

Thanks, learn something everyday.

[Roland Slugg]

Yes, there is definitely unstated interest in the case described, so the imputed interest rules must be followed. It won't be very much, though, because interest rates are so low ... probably about 1%. Use the short-term AFR.

Regarding the question about ending the p'ship or keeping it going, that all depends on whether the installment obligation and all other p'ship assets are distributed to the partners. If they are, the p'ship ends. If not, then the p'ship continues on. If these were my clients, I would advise them to liquidate the p'ship by distributing all its assets, including the $25,000 note received from the buyer, to its two partners.

Finally, the OP says the assets that were sold for $25,000 consisted of some or all of the business equipment. When §1245 property is sold, all the depreciation is recaptured and taxed as ordinary income in the year of sale (but not more than the overall gain). This could result in 100% or nearly 100% of the gain being taxable in the year of sale, rendering the benefit of the installment sale meaningless. If that is the case, the sellers may want to "elect out" of installment sale reporting.

[Twin Turbo Z]

The $25,000 note is for all the equipment the two partners owned. Nothing more. And there is maybe 5 pieces of equipment involved. I know the two partners would be up for just selling off the equipment for the $25000 and ending the partnership this year. And yes there is depreciation to be captured, but some to be used up also. And they had operating loses for the partial year they were open. So the tax implications on their personal returns would be negligible. This may be the best and easiest option.