Sales of business

[Gretel]

It's the first time I have to report a sale of business, which includes inventory, no money received in 2006. If feel like an ox: I know what to do and don't know how to do it!

Sale price $8000

Inventory $1000
Assets $4,000 Sec.179 taken but not allowed because of loss and carried forward to 2006, 2006 loss again (never enough income to allow any of 179 expenses)
Goodwill $3,000

How do I report on form 6252?

Sales price $8,000, basis $4,000 = gross profit 50%

or

Sales price $7,000, basis $4,000 and then report $1,000 for inventory some place else to have it reported as ordinary income?

I assume ending inventory on Sch. C is $1,000??

Please help.

[oceanlovin'ea]

Use 4797

to report the sale of the business.

Form 6252 is for an installment sale. If they are getting payments on the business, you would use this to show yearly payments.

Linda F

[Gretel]

Thanks, Linda. This is an installment sale, first money received in 2007, but business taken over in 12/06. Even though there is probably no depreciation recapture in this case I still need to show the inventory sale in 2006, don't I?

By now I figured that the inventory sale is totally separate from the business sale as far as reporting goes. But where do I report the inventory sale? Also on form 4797 as short term sale?

[Gretel]

Is this it?

After some more reading, thinking and talking:

Sale of inventory is reported on Sch. C as part of COGS? So I just leave ending inventory on Sch. C?

[veritas]

Ok

I would credit purchases for the sale of inventory and not show an ending inventory.

The equipment sale depends if there is depreciation taken it is recaptured in the year of sale. If it is a loss or a push it would be reported in full on the 4797.

Then going forward 37.5% of the principal payments are reported as a sale of goodwill. This is assuming you don't have goodwill on the books for your existing client. If you do then the reporting may be different.

[OldJack]

When the inventory is sold with a complete sale of the business it is a code §1231 asset reported with sale price and cost basis on form 4797, part II, ordinary income/loss section.

[veritas]

I agree

but as a practical matter it's the same result and it seemed an easier way to 'splain it.