Sale of Bread Truck Route

[dhoyt]

Hi all. I have a client who sold his bread truck route last year. The route has been amortized for a few years since he purchased it. No other assets are being sold, just the intangible route.

When I list the disposition in the depreciation worksheet, it carries to 4797 Part III. The depreciated portion then carries to Schedule 1 and taxed as ordinary income, and the rest of the gains carry to Sch D, Line 11.

A CPA friend of mine tells me, though, that this type of intagible asset is not required to go on Part III of 4797. He says it goes on Part I, and therefor the entire amount of gains plus depreciated portion all flows to Sch D as long term capital gains, a significant savings to the client. I can't find anything to support his position though.

How should this sale be treated? Any help is appreciated

[Terry53029]

A bread route is considered as a Section 197 intangible by the IRS. The cost has to be capitalized and amortized over 15 years. I believe section 197 intangible property is treated as property which is subject to the allowance for depreciation and constitutes property subject to depreciation recapture under Section 1245. You should research this yourself, as I have never done this type of sale.

[dhoyt]

Thank you. That is my understanding as well. But my CPA friend is adamant that it doesn't count as 1245. Usually his advice is pretty good and he has many years more experience than me, but I always try to research it to be sure.

If anyone else has any feedback or experience with this before I make a final decision, I'd appreciate it.

[TaxGuyBill]

I haven't researched it, but a quick search shows that §1.197-2(g)(8) says "Also, an amortizable section 197 intangible is section 1245 property".

But I have NOT read the surrounding information or researched it, so I could be taking it out of context.

https://www.law.cornell.edu/cfr/text/26/1.197-2