Sale of business property

[Mars1]

I have a client who sold his business property. I know he and the buyer must fill out Form 8594 Acquisition Statement. I know it is to be attached to the tax return. All the assets involved must be put in classes on the form. Do I put a sale price for each asset in the return showing it is sold? Also the seller is holding the note for the sale and has decided on the payment and interest amounts. Is it necessary to do an installment sale for this?

[IRonMaN · Accepted solution]

Yes, you show a selling price for each of the assets sold, or you could delete the assets and just enter as one total showing sales price, cost, and accumulated depreciation.  You may want to report an installment sale if it is beneficial to the seller, but if they sold assets that resulted in depreciation recapture that generated the gain, all of the gain would be reported in the year of sale anyway.

[Mars1]

Thank you for the info. It does help so much.  Just wanted to be sure I was on the right track for this sale.

[IRonMaN]

You betcha!

[Summer2021]

Will you answer change if the seller is a cash method taxpayer? 

My question is: should the portion of the gain from depreciation recapture be reported in year of sales for a cash method taxpayer in an installment sale?

[sjrcpa]

"should the portion of the gain from depreciation recapture be reported in year of sales for a cash method taxpayer in an installment sale?"

Yes, it has to be, even if they received $-0-.

[TaxGuyBill]

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@Summer2021 wrote:

My question is: should the portion of the gain from depreciation recapture be reported in year of sales for a cash method taxpayer in an installment sale?

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If it is actually "recapture", yes, that amount would be fully taxable in the year of the sale.

But if you are talking about Real Estate, that usually does not have "recapture".  The gain due to straight-line depreciation of real estate is "Unrecaptured Section 1250 Gain", and that is NOT fully taxable in the year of the sale (it is spread out, based on the amount paid).

[Summer2021]

It's a sale of machineries. 

Please note that my question is related to installment sales and my client is a cash method taxpayer.  Payment/proceed was received in a subsequent year. 

This is my understanding that under an installment sale, gain is deferred and realized when payment is received.  However, I am not sure either.

[sjrcpa]

Ordinary income is taxed in full in the year of the installment sale. Depreciation recapture from machinery sales is ordinary income. If you fill out the 6252 correctly this is the result you get.

They made a bad deal if they didn't get enough cash at closing to pay the tax.

Cash basis doesn't affect this.