I have a sole-prop client who sold their business in 2017 for a total of $75,000.00. 

They and the buyer both completed Form 8594 allocating $32,214 to Class V and $42,786 to Class VII (goodwill).  Of Class V, $10,904 has depreciable assets and the remaining $21,310 are non-depreciable assets such as chairs, garbage cans, mops, mats, coffee maker, etc; all items used to operate the business.

I understand how to account for the assets we have been taking depreciation on and the goodwill (self-created), but for those other items, I would account for on Form 4797 as non-depreciable, they would go in Part II and would be considered ordinary gain or loss?

It would be interesting to know how this will work from the buyer’s perspective as well.  They would get to take depreciation on the agreed upon sell price of $10,904 in depreciable assets and $42,786 of goodwill, but how do they classify the $21,310 of non-depreciable assets?