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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15610
Experience:  15years with H & R Block. Divisional leader, Instructor
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Hello. I have sold half of my business in Nov. 2012. The remaining

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Hello. I have sold half of my business in Nov. 2012. The remaining half is continuing in a new location. My question is: can I count the income from the sale as misc. income or must I consider it a capital gain? I received $10k in Nov. 2012 and the remaining $40k in Jan 2013. for total sale of $50k.

Robin D :

Hello and thank you for using Just Answer,
The sale of a business usually is not a sale of one asset. Instead, all the assets of the business are sold. Generally, when this occurs, each asset is treated as being sold separately for determining the treatment of gain or loss.
When sold, these assets must be classified as capital assets, depreciable property used in the business, real property used in the business, or property held for sale to customers, such as 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 gain or loss from a section 1231 transaction. The sale of inventory results in ordinary income or loss.

Robin D :

Except for assets exchanged under any nontaxable exchange rules, both the buyer and seller of a business must use the residual method to allocate the consideration to each business asset transferred. This method determines gain or loss from the transfer of each asset and how much of the consideration is for goodwill and certain other intangible property. It also determines the buyer's basis in the business assets.
If you are trying to report the sale of the business yourself, you may find IRS publication 544 very helpful

The system requires I ask you what else I can tell you about your question.
Customer: replied 4 years ago.

I have read the same answer you gave me on other websites while I was searching for an answer so it is of no new help to me.

What I am trying to find out is, since I only sold half of my business and will remain in business with the other half, can the portion I sold be considered additional income rather than a capital gain as if I simply sold a piece of equipment? The answer you gave me seems to only cover a whole business sold.

Thank you for responding.
You stated you sold half your business, does that mean then that you took in a partner?
If not and you sold half your business it is a sale of your business and that would mean you would need to account for in the way I described.
If you only disposed of a piece of equipment then you can show the sale of the equipment, but that too would be a capital asset sold and come under the capital gains.
You may not count the sale as additional income on it's own but will need to apply the correct classification to actual sale.

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