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sale of assets in a business sale and remvoal of individual assets in bulk

Level 1

If have an S corp who sold substantially all of their assets (basically sold their business) is there a way to remove the individual assets from the depreciation schedule sand group them into line item on the 4797?

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7 Replies 7
Level 13

What do you mean by "group" them?  If they are different items, they need to be reported separately.  You just enter the sales information on each Asset Entry Worksheet and the sales information for each asset will go onto a separate line on the 4797.

Or are you talking about that you have separate depreciation for the same asset, such as a building with separate improvements that you want to just report as one building sale, rather than the sale of a building and the sale of the separate improvements to that building?

Level 1

Some tax software allows you to assign each asset to a group...say group 1...then all of the cost basis and prior deprecation shows up on one line on the 4797 and then you can enter the sales price for that group.

This way you do not have to put a sales price for each individual asset on the asset entry worksheets; also in real life an asset allocation schedule often does not specify nor assign a value to every single asset on the sellers depreciation schedule.

 

I was wondering whether ProSeries has this useful capability?

 

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Level 13

If they are different assets, in many cases that treatment is not allowable.  They need to be reported separately because gains, losses, and depreciation recapture all need to be factored in for each separate asset because they may be treated differently.  Just netting them all will often have a different and wrong result

If it was all part of one asset (such as a house with additional improvements), you are right, some software allows you to 'group' them like that to report it as one item.  Unfortunately, ProSeries is NOT able to do that (it seems like they set it up to do that, but it doesn't work).  But as I mentioned before, if you have separate assets you are not allowed to combine them anyways.

Level 1

talking s-corp here so the only issue about grouping assets is any assets that had sec. 179 expense...they would need to be grouped together for pass through purposes....and then other assets as another....

the issue is when the asset purchase agreement does not specify value to specific assets so then one must allocate the sales price...which could result in some odd gain/losses on individual assets

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Level 13

The same thing applies to a S-corporation.  Different asset may have gain, loss, depreciation recapture, 1231 gain/loss that each needs to be reported separately.  Grouping them may result in the wrong results going to the K-1.

Yes, the sales price needs to be allocated.  If the agreement does not state such an allocation, you must allocate it based on the Fair Market Value of each item.

Level 1

Thanks I appreciate your replies. Even if I have 400 detailed entries on a 4797 they all will be eventually be totaled and go to Part 1 or Part 2. As I mentioned the Sec. 179 recapture requires special treatment.

So I am to understand that ProSeries does not have the functionality I seek.

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Level 13

Sigh.  As I said before, they are totaled but the results may be different.  Let me give you an simplified example.  In the example I'm using FMV and Sales Price as the same thing, but often you need to prorate each number.

 

Asset #1:  Original Basis $1000.  Depreciation taken $500.  FMV $600.  Result = $100 deprecation recapture taxed as ordinary income.

Asset #2:  Original Basis $1000.  Depreciation taken $500.  FMV $400.  Result = $100 Section 1231 loss.

 

If you properly do it by reporting things separately, $100 would be in Box 1 of the K-1 (depreciation recapture taxed as ordinary income) and $100 loss will be in Box 9 of the K-1 (subject to 1231 rules).  Different tax treatments for different things.

If you incorrectly combine them as one item, you will have $0 on the K-1.