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D
DRS19
Level 3
March 12, 2023
Question

A Covenant Not to Compete for the seller of the business. I know that it would be listed on Form 4797, but would it be considered ST or LT?

  • March 12, 2023
  • 1 reply
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1 reply

dkh
dkh
Level 15
March 12, 2023

short term - it's taxed as ordinary income

    D
    DRS19Author
    Level 3
    March 12, 2023

    That is what I originally thought, but then I found this.  A covenant not to compete that is in the purchase agreement can be treated as a capital asset to the purchaser and seller, if the covenant is closely related to the sale of business goodwill.  In my situation, I think that it is, but it is definitely confusing.  

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