Harold Goedde

This article is part 2 of a three-part series which discusses how to determine the amount of the loss for personal use and income producing property, amount deductible, and tax year for the deduction (part 1 can be found here). We will discuss gains, including deferring the gain for income producing property by purchasing replacement property-qualifying property, time period for replacement, realized and recognized gain, and basis of new property in the final installment.

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Buying and selling business assets can be complicated. The last thing you want – BELIEVE ME – is the hassle of explaining inconsistent treatment of the sale for tax purposes 3 YEARS INTO THE FUTURE. Avoiding this is simply accomplished by remembering to file one extra tax form. Basically the US tax law requires both the seller and purchaser of a group of assets that makes up a trade or business to file IRS Form 8594 to report the sale if:

1. Goodwill or going concern value attaches, or could attach, to such assets.
2. The purchaser’s basis in the assets is determined only by the amount paid for the assets. In other words no other substantiation of market value … Read More

Business assets are not capital assets but the sale my result in long-term capital gain if the asset has been held for more than one year. Under Code Section 1231, the net gain from sale of all Section 1231 assets is long-term capital gain, but there are two are two exceptions for depreciable property. (1) For personal property, under Section 1245, gain is ordinary income to the extent of any depreciation allowed or allowable (depreciation recapture). Allowable means that if the taxpayer could have taken depreciation on the asset but did not do so, then this amount must reduce the basis of the asset and is considered as ordinary income when the property is sold for a gain. (2) Under Section 1250, real property depreciated under an accelerated method is also treated as ordinary income. The amount of recapture depends on when the asset was placed in service and what depreciation method Read More