Have a Tax Question? Ask a Tax Expert
It appears that you will have a capital gain as your purchase price must be reduced by the 10 years of amoritizion expense, resulting in a capital gain.
If you are receiving the payments over two years, you may report only so much of the gain as it relates to the payments that you actually receive during the tax year.
In order to do this, you will use Form 6252 for Installment Sales.
I would suggest that given the nature of the transaction that you engage a local CPA to prepare you tax returns to make sure the sale is reported properly as well as the Installment Obligation/Installment Sale.
Well, that's possible, but not necessarily definitive. Without further analysis of the sale and the business you actually sold, it is impossible to generalize, but I happen to have some experience with Insurance Agency transactions and there are alternative treatments that may reduce the recapture. By the way, any ordinary income that results from recapture of amortization must be recorded in the year of sale irrespective of the installment sale treatment. This is one of the main reasons that I suggested that you engage a CPA to analyze the details of your specific transaction, what you actually sold and how the sales price/purchase price should be allocated to your best tax advantage.
Without getting too technical the potential savings off the traditional allocation that results in recapturing 100% of the amortization involves analyzing your actual book of business to see where the value of the "Goodwill" actually lies. In other words the Goodwill that you are selling is not the same as the Goodwill you purchased. To oversimplify the concept is that much of the original Goodwill related to the intangibles in existence when you acquired the agency. Much of that Goodwill may have now disappeared. Under present law, acquired Goodwill may be amortized over 15 years, but Goodwill that you develop yourself just by running your business and increasing your volume and quality of business for example, the costs of that Goodwill are currently expensed through your labor costs, certain operating expenses, etc. The value of that Goodwill is not captured and available to amortize under present law. So, if you are actually selling that Goodwill as part of the total Intangibles that are being sold, there's no amortization recapture related of that "new" goodwill because it was never part of the original goodwill that your purchased. The net effect of that is to reduce the current value of the Goodwill that you purchased and thus decrease the amortization recapture (the recapture can't exceed the value of the original purchased Goodwill). As I said, it gets complicated.
In summary, the first thing that has to be done is to make sure that the tax benefit of reducing the ordinary income portion of the transaction is sufficient to support the extra work & analysis that would be required to support those conclusions. That would involve evaluating the amounts involved, your tax rates, etc. & identifying the potential savings.