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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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I have an arbitrary question that hopefully you can help me

Customer Question

I have an arbitrary question that hopefully you can help me with. Relatives own a building in NYC and my LLC has rented the building from them at fair market value for the last seven years. The relatives have been offered a price to sell the building by a developer if they can deliver it vacant. However, my LLC is very profitable and It has a long term lease left on the building. The relatives make me an offer to buy the stock in my LLC so that they can shut it down, terminate the lease and sell the building vacant. I decide to take the offer because it is too good to pass up. Under these circumstances it is my understanding that taxes owed on the sale of my LLC would be capital gains tax for both the fed and state i live in. Is this accurate?
Submitted: 7 years ago.
Category: Tax
Expert:  Ed Johnson replied 7 years ago.

DearCustomer

 

Almost. You have to structure it so it is a stock sale. BUT when you dispose of the depreciable assets you may have to pay recapture tax on excess depreciation.

 

 

Ed Johnson and other Tax Specialists are ready to help you
Customer: replied 7 years ago.
what do you mean by depreciable assets?
Expert:  Ed Johnson replied 7 years ago.

Depreciable assests would be like office equipment, buildings, vehicles, etc that you may have taken depreciation on, during the course of your business.

 

Depreciation is a deductible business expense. The IRS considers that business and individuas in business activity circumstances realize a profit from taking depreciation. So when you sell the business and dispose of the assets, the IRS recovers a portion of this by what is called recapture tax.

 

Depending on how it was depreciated and when it was placed into service, depreciation is taxed as:

 

regular income

capital gains,

or recapture tax at 25%

 

You may find resources at this link helpful.

 

http://www.irs.gov/businesses/small/article/0,,id=98761,00.html