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Old 09-22-2008, 12:40 AM
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S-corp capital gains

Guru,

I sold my coffee business last January and have just been holding the gains in the bank. I was hoping that I would be able to file a simple return at the end of the year like previous years, deducting my years business expenses from the capital gains. Is it true that this gain would be taxed at 15% long term? Also, I only sold equipment, non-compete, goodwill, etc., no real property. I assume I will be able to deduct my home equity loan that I used to purchase the business but immediately paid off after the sale , straight off the top?

Thanks, flystevens


Last edited by TaxGuru : 09-22-2008 at 10:35 PM.


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Old 09-22-2008, 10:34 PM
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The home equity loan that you used to purchase the business is considered part of your basis. Presumably, you had been either depreciating or amortizing the purchase price of this business based on the asset allocation, that is fixed assets would be depreciated whereas goodwill would be taken over a longer period called amortization.

So, the loan cannot be written off against the sale price to reduce the profit as the assets would have been written off by a combination of amortization or depreciation over the years since you bought the coffee business.

I would look at your prior years tax returns and review the computation of depreciation deduction and you will notice that the cost of the business has been depreciated and amortized based on the asset allocation. This accumulated depreciation and amortization would tend to reduce your basis and hence result in an increased profit on sale of the coffee business.

The Profit is thus computed as Sales Price Less Adjusted Basis of the Business (this is computed as Purchase Price Plus Improvements Less Accumulated Depreciation and Amortization to date).

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