My client sold a bread route for $200K that was originally purchased in 2005 for $175K.

[Chris sick]

My understanding is that the original purchase price should have been amortized as an intangible asset. The client does not have her old tax returns and she doesn't remember how/if it was written off.  Do I assume it was amortized and record $175K ordinary income and $25K L-T capital gain?

[dascpa]

Both depreciation and amortization are "allowed or allowable", therefore you should consider the 15 year property fully amortized.

[Chris sick]

Thank you for confirming what I had calculated.  A bread route is something I hadn't seen before, LOL. So record on 4797 and Sched D, correct?

[dascpa · Accepted solution]

Route sales and route businesses are actually more common than most people know.  If you've ever been in a grocery store or Walmart and watch the people stocking the shelves during the day, typically they're route salesman (sorry, person) for a brand (Pepperidge Farm, Planters, bread, etc.). The route itself is an intangible asset like customer lists, goodwill, etc. Therefore the sale is treated the same way.  Yes to Schedule 4797 and then P.S. will have it flow to the proper forms from there.

[qbteachmt]

You can get tax transcripts back for 10 years. That will cover a lot of the period you need to know about.

[BobKamman]

How would a transcript show how much amortization was claimed?  

[qbteachmt]

Any information is better than no information. You don't know what is useful, until you get a look at it.

[BobKamman]

I remember there used to be a question of whether amortization was optional or mandatory.  I think some of it related to accounting rules, not tax law.  And Section 197 was last amended in 2004, which was before the 2005 purchase date here. So maybe the earlier rules don't apply.  Section 197 says, "A taxpayer shall be entitled to an amortization deduction with respect to any amortizable intangible."  Compare that to Section 167, "There shall be allowed as a depreciation deduction a reasonable allowance."  

I would file an extension and pin this down, before telling her she owes tax on $175K.

[BobKamman]

You're right!  So I Googled my horoscope for today and found this useful information:  "It's all about leisure and pleasure in the Aquarius HQ. That's right, beautiful! you're in the mood for all kinds of indulgences. So, take yourself out for that artisanal latte or check in to your favourite spa for some much-needed R&R."

[Chris sick]

My client has 2 other bread routes, one goes back to 1987 that she's selling in 2024, so this should be interesting. . .