Some additional information you might find helpful...
If the business is sold as assets - the business is a collection
of assets, some tangible (real estate, inventory, etc) and some intangible (goodwill, accounts receivable, a trade name, etc). According to IRS rules
, the buyer and seller must use the same allocation, so the allocation will have to be negotiated and put in writing as part of the sales contract.
Both the buyer and seller involved in the sale of business assets must report to the IRS the allocation of the sales price among section 197 intangibles and the other business assets. Use Form
8594, Asset Acquisition Statement Under Section 1060, to provide this information. The buyer and seller should each attach Form 8594 to their federal income
for the year in which the sale occurred.
Seller's taxable income
is calculated for each asset = (selling price) - (basis); If the asset was purchased - the basis is its purchase price; The basis should be adjusted by any improvement expenses and depreciation
When sold, these assets must be classified as capital assets, depreciable property
, real property, intangible property (including goodwill, non-compete agreement, patents, franchise, trademark, trade name), or property held for sale (inventory or stock in trade).
The gain or loss on each asset is figured separately. The sale of capital assets results in capital gain or loss. The sale of real property or depreciable property used in the business and held longer than 1 year results in long term gain or ordinary loss. The sale of inventory results in ordinary income or loss.The sale of real property or depreciable property used in the business and held longer than 1 year results in long term gain or ordinary loss.
Self-created assets generally do not qualify for long term capital
When you determine the gain on depreciable asset - part of the gain attributable to depreciation recapture is taxed as ordinary income and the rest of the gain - as a long term capital gain. Self-created intangibles - such as goodwill - are taxed as ordinary income.