Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax

I am selling my practice, and there is an allocation in the

Customer Question
sales agreement (not a separate...
I am selling my practice, and there is an allocation in the sales agreement (not a separate agreement) for a covenant not not compete. I'm getting a lot down, but I will still elect the installment method of reporting the sale. How do I report the covenant income? Normally it is ordinary income, but now under the law it is a Section 197 asset. Some sources say to report it on a separate 6252 and have it still as ordinary income. Is that correct?
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: No
Submitted: 1 year ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 3 minutes by:
10/12/2016
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 1 year ago
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,712
Experience: 35 years tax experience, including four years at a Big 4 firm.
Verified

Hi from Just Answer. I'mCustomer and can assist.

Ask Your Own Tax Question
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 1 year ago

The answer is between the two extremes you mention.

Since covenant payments are ordinary income OVER THE LIFE OF THE AGREEMENT, it is neither when paid or over 15 years as 197. It is over the life of the agreement.

If you agreed not to compete for two tax years, then the payment of that portion would be ordinary income over the years of receipt.

We take covenant payments out of the payment stream for the installment gain reporting, and report it separately as other income, 1040, line 21.

Thanks for asking at Just Answer. Positive feedback is appreciated. I'mCustomer

Ask Your Own Tax Question
Customer reply replied 1 year ago
This is an installment sale. Do I have to report the entire covenant in the year of sale or can I recognize the income as the note is collected?
Tax Professional: PDtax, Certified Public Accountant (CPA) replied 1 year ago

You recognize the covenant income over the life of the agreement.

Let's say you receive $100,000 in year 1 and 2 of your note. A two year covenant that you value at $55,000 would be allocated $55,000 of your note payments. The $45,000 remainder would be considered note payments of your installment sale. Report the income as it is paid to you over the life of the COVENANT.

Customer/p>
Ask Your Own Tax Question
Ask PDtax Your Own Question
PDtax
PDtax
PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4,712
4,712 Satisfied Customers
Experience: 35 years tax experience, including four years at a Big 4 firm.

PDtax is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
If I purchase a business asset with a 5 years installment.
Hi,If I purchase a business asset with a 5 years installment. The asset is an office furniture. Can I can section 179 even if I am going to pay off the furniture in 5 years? Please note that I am on t… read more
Amanda Russell
Amanda Russell
Accounting Tax & Profit Strategist
Master\u0027s Degree
9 satisfied customers
Is the sale of customer list a capital gain or ordinary income?
Is the sale of self-created intangibles, such customer lists, digital files, web sites, etc subject to capital gain or ordinary income treatment?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
How do I treat the sale of self created assets such as
How do I treat the sale of self created assets such as customer lists when selling a business … read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,220 satisfied customers
Rental real estate installment sale. Commercial rental real
Rental real estate installment sale.Commercial rental real estate (non related party transaction) has been owned/rented for over 10 years. It is owned 70% by individual and 30% by ROTH.Client is going… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a question regarding the ordinary income tax. If the
Hello, I have a question regarding the ordinary income tax. If the ordinary income tax due is negative does that apply anywhere? This pertains to the sale of an S corp .business. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
I have a question on Form 6252 Installment sale on Property.
Hi I have a question on Form 6252 Installment sale on Property … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,473 satisfied customers
Is 1120-S K1 non-passive ordinary income also taxable to
Is 1120-S K1 non-passive ordinary income also taxable to self-employment tax? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,473 satisfied customers
How to report the sale of a property outside US? How to
How to report the sale of a property outside US? How to claim the taxes paid abroad on the profit made by selling property overseas?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Were to report gain on sale of residence used partly for
Were to report gain on sale of residence used partly for business? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
An S Corporation is selling its assets under an Asset
An S Corporation is selling its assets under an Asset Purchase Agreement. The 2 stockholders materially participate in the operation of the business. The business provides credit card processing softw… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Short Term Installment Sale. Client purchased a property,
Short Term Installment Sale. Client purchased a property, then sold for a gain in less than 1 year. The sale is an installment sale. My software is picking up the entire gain as ordinary income this y… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,220 satisfied customers
Installment Sales - A taxpayer owns rental property (over
Installment Sales -A taxpayer owns rental property (over several years). Taxpayer is selling rental property and will hold the mortgage for the purchaser. Will this be considered a straight sale, reco… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Is the sale of Section 1245 & Section 1250 assets both
Is the sale of Section 1245 & Section 1250 assets both reported in part III of Form 4797 & does this also include the assets held less than 1 year?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
I sold property with a down payment plus installment sale.
I sold property with a down payment plus installment sale. How do I record the down payment? I assume the installment sale will be reported on 6252, but how do I address the down payment? If I record … read more
Brian Michels
Brian Michels
Partner, CPA
Bachelors of Business Administration
154 satisfied customers
In selling an s-corp, if an installment sale is setup, but
in selling an s-corp, if an installment sale is setup, but NO installments are made to me, is that a red flag?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I had an installment sale I was reporting on my personal
I had an installment sale I was reporting on my personal return. Beginning January 1, 2016 someone else took over and started receiving installment payments. I paid $7,000 in attorney fees to transfer… read more
PDtax
PDtax
Certified Public Accountant (CPA)
4,712 satisfied customers
If a taxpayer sells a business on an installment sale basis,
If a taxpayer sells a business on an installment sale basis, where no interest is stated in the payment plan, is interest imputed, and if so, how? Would one allocate some of the total purchase price t… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
New law for repair, maintennance and installation sales tax
New law for repair, maintennance and installation sales tax take in effect 1/1/207 for contractors. Im reading all these exemptions and want to know if capital improvements and new construction is exe… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,473 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x