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I sold my trucking business in Dec for 359k. Got a payment for 80k then. Sale is trucks and good will. How do I calculate basis?

My client sold his trucking business for $359,000. with a cash lump sum received on Dec. 23 2011 of $80,000. The sale consisted of trucks and trailers, goodwill, customer accounts and non compete. The sales agreement provides for monthly payments to be made monthly over the next 4 yrs. How do I calculate his basis? I know there is no basis for goodwill or non compete, but the installment agreement for the IRS seems to indicate that I cannot add the cost of the trucks since they are diesel vehicles. I have been depreciating them, so I'm assuming that is why I cannot use their cost? I know this will be complicated since the equipment did not legally change hands until 2012 but the sales agreement was dated Dec. 2011 and my client received a payment of $80,000. at that time. I am not showing the sale of the equipment on his 2011 tax return since it was all in his name until late Jan.2012. To make matters even more complicated, the buyer has since not made even one more payment towards the remaining balance. I anticipate a broken contract which will further complicate the 2012 return in terms of the equipment, especially if the buyer returns the equipment. A lawyer is dealing with the contract issue, but I do not know how to calculate the basis so that I can accurately show the payment he received in 2011 and file the installment agreement.

Reply to
tax team
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"tax team" wrote

You can't use their cost because you have to use their depreciated basis. Some of themn may be fully depreciated with the tractors having a faster depreciation than say the trailers.

And what does an IRS installement agreement have to do with this?

Depending on the terms of the contract, was the $80,000 a deposit? Then the sale happened in 2012. But the contract may also lead to a 2011 sale with the prior owner being allowed to continue using the equipment into 2012.

You'd have to read the contract to determine when it was completed.

As far as the basis, you use the depreciated book values. Purchase price less depreciation.

When or if the seller repossesses the equipment, then there is a different computation to figure the new basis of the equipment. But you do not need that to figure that for the gain/loss computation.

Reply to
paulthomascpa

I think he meant to say "installment sale" as it appears the business was sold at a gain. He is receiving payments over multiple years. As such, it is an installement sale unless he makes an election (elects out) to report the sale in its entirety in 2011.

Reply to
Alan

Another issue is that the portion of the purchase price allocated to the equipment will generate Section 1245 ordinary gain, regardless whether there is an installment sale (which can only be used for capital and Section 1231 gains). So much of the $80,000 might go for taxes on the equipment. If your client has to repossess, there will be other complications. But the equipment would then have a basis with reference to the original sales price, so depreciation can start all over again if the client starts using it again in his business. Make sure both client and buyer have agreed on the price allocation on Form 8594.

Reply to
Tom Healy CPA

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