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I sold my financial advisory practice in 2017 and am filling…

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Good morning. I sold...

Good morning. I sold my financial advisory practice in 2017 and am filling out the 8594. I have a cost basis of $190k as I purchased another practice in 2006. For the total sale price I assume it is the gross amount I am to receive minus the cost basis correct? Also the only assets involved in this sale is my client base, so is this considered a class I asset? And what is the aggregrate vs the allocation of sales price?

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

I received $190k up front and will receive the balance over the next 4 years

Submitted: 26 days ago.Category: Tax
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Answered in 24 minutes by:
3/28/2018
Tax Professional: Lev, Tax Advisor replied 26 days ago
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 32,697
Experience: Taxes, Immigration, Labor Relations
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As you have only one asset - there is nothing to allocate...

The full sale price will be attributable the client list.

That will be classified as "amortizable section 197 intangible asset"

For purposes of form 8594 - that is "class VI asset"

See here

https://www.law.cornell.edu/uscode/text/26/197

You will need the amount of accumulated amortization.

I would estimate it as

$190k * 13 years in practice / 15 years amortization period = ~$164k

.

You will report the sale transaction on form 4797

https://www.irs.gov/pub/irs-pdf/f4797.pdf

.

Your gain will be calculated as

(selling price - we still need that amount) MINUS (cost basis)

The part of the gain equals to $164k (amortization recapture) will be taxed as ordinary income

and the rest as capital gain.

.

As you are selling on installments - you may choose to recognize the full gain in the year of sale

OR to report using installment method and spread recognition on income over several years.

Under the installment method, you include in income each year only part of the gain you receive, or are considered to have received.

You don't include in income the part of the payment that's a return of your basis in the property.

Use Form 6252.pdf, Installment Sale Income, to report an installment sale in the year the sale occurs and for each year you receive an installment payment.

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Tax Professional: Lev, Tax Advisor replied 22 days ago

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.

If you still have any doubts, need clarification - please be sure to ask.

I am here to help you with all Social Security / Tax related issues.

.

I would like to take this opportunity to wish you peace, love and happiness. Happy Easter!

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