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Old 12-19-2018, 06:03 PM
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Unamortized Goodwill on Closed Business

Hello,
I purchased a client list for a home care company in June 2017 for $61K. I booked this as goodwill and recorded it on my 2017 income taxes as being amortized over 15 years. Unexpectedly, I decided to close the business in March 2018. My state license to provide home care services expired on 6/30/18. There are no other intangible assets associated with the business at this point.

My business is a single member LLC.

I've been researching section 197 but was hoping for clarification. Would I write off the remaining unamortized goodwill ($59K at this point after amortizing $2K on my 2017 return) on my 2018 tax return?

Thank you in advance for any responses.



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Old 12-20-2018, 03:35 AM
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I purchased a client list for a home care company in June 2017 for $61K. I booked this as goodwill and recorded it on my 2017 income taxes as being amortized over 15 years. ===========>>as you know, unlike physical assets,i.e., buildings or equipment, goodwill is an intangible asset arising when you acquire an existing business;goodwill is a crucial asset when determining your biz?s overall valuation. Normally you can only take a write-off for the goodwill by amortizing the purchase price over 15 years.


Unexpectedly, I decided to close the business in March 2018. My state license to provide home care services expired on 6/30/18. There are no other intangible assets associated with the business at this point.My business is a single member LLC.
I've been researching section 197 but was hoping for clarification. Would I write off the remaining unamortized goodwill ($59K at this point after amortizing $2K on my 2017 return) on my 2018 tax return?==========>> you can expense the unamortized amount of the goodwill in the year you closed the SMLLC,i.e. disposal of the goodwill, and aslongsas the goodwill no longer had any value. Unlike financial accounting practice, The IRShas different rules and doesn't let you deduct goodwill. One exception is if you abandon your SMLLC in the middle of the tax year. In that case, your basis in the goodwill ,the original value less amortization , is a write-off. So, in your case, as long as no other section 197 intangibles are held by you when the SMLLC is no longer a going concern, the remaining basis in the goodwill would be reported as a capital loss If you held the goodwill for more than 1 year. If you held thegoodwill 1 year or less, any gain or loss on its disposition is an ordinary gain or loss.



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Old 12-20-2018, 09:07 AM
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Quote:
Originally Posted by Wnhough View Post
I purchased a client list for a home care company in June 2017 for $61K. I booked this as goodwill and recorded it on my 2017 income taxes as being amortized over 15 years. ===========>>as you know, unlike physical assets,i.e., buildings or equipment, goodwill is an intangible asset arising when you acquire an existing business;goodwill is a crucial asset when determining your biz?s overall valuation. Normally you can only take a write-off for the goodwill by amortizing the purchase price over 15 years.


Unexpectedly, I decided to close the business in March 2018. My state license to provide home care services expired on 6/30/18. There are no other intangible assets associated with the business at this point.My business is a single member LLC.
I've been researching section 197 but was hoping for clarification. Would I write off the remaining unamortized goodwill ($59K at this point after amortizing $2K on my 2017 return) on my 2018 tax return?==========>> you can expense the unamortized amount of the goodwill in the year you closed the SMLLC,i.e. disposal of the goodwill, and aslongsas the goodwill no longer had any value. Unlike financial accounting practice, The IRShas different rules and doesn't let you deduct goodwill. One exception is if you abandon your SMLLC in the middle of the tax year. In that case, your basis in the goodwill ,the original value less amortization , is a write-off. So, in your case, as long as no other section 197 intangibles are held by you when the SMLLC is no longer a going concern, the remaining basis in the goodwill would be reported as a capital loss If you held the goodwill for more than 1 year. If you held thegoodwill 1 year or less, any gain or loss on its disposition is an ordinary gain or loss.
Thank you for the response. Could you please clarify the difference between a capital loss vs. an ordinary loss? Would the amount on my tax return still be $59K for the unamortized goodwill in either case?

The clients that made up the goodwill were gone on March 10, 2018 (original purchase was June 26, 2017). I had a license from the state until June 30, 2018 so I could have technically serviced clients until that time but I think that for tax purposes, the goodwill was gone when the clients that made up the goodwill were gone (March 10, 2018) so it would be an ordinary loss.



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Old 12-20-2018, 09:10 AM
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Thank you for the response. Could you please clarify the difference between a capital loss vs. an ordinary loss? Would the amount on my tax return still be $59K for the unamortized goodwill in either case?

The clients that made up the goodwill were gone on March 10, 2018 (original purchase was June 26, 2017). I had a license from the state until June 30, 2018 so I could have technically serviced clients until that time but I think that for tax purposes, the goodwill was gone when the clients that made up the goodwill were gone (March 10, 2018) so it would be an ordinary loss.



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Old 12-21-2018, 02:35 AM
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Originally Posted by bryand View Post
Thank you for the response. Could you please clarify the difference between a capital loss vs. an ordinary loss? Would the amount on my tax return still be $59K for the unamortized goodwill in either case?

The clients that made up the goodwill were gone on March 10, 2018 (original purchase was June 26, 2017). I had a license from the state until June 30, 2018 so I could have technically serviced clients until that time but I think that for tax purposes, the goodwill was gone when the clients that made up the goodwill were gone (March 10, 2018) so it would be an ordinary loss.
Thank you for the response. Could you please clarify the difference between a capital loss vs. an ordinary loss? =============>>>>>>>>>Capital losses and ordinary losses receive different tax treatment. A net capital loss (capital losses exceeding capital gains) is subject to an annual deduction limit of $3,000 and is deducted from other sources of income reported on your tax return, such as wages, interest, dividends,.
If a net capital loss exceeds $3,000, the excess must be carried over to the following year and is included in the computation of capital gains and losses of that year. If the loss is not used up in the following year, it may be carried to future years until it is used up. An ordinary loss is mostly fully deductible in the year of the loss, An ordinary loss will offset ordinary income .



Would the amount on my tax return still be $59K for the unamortized goodwill in either case?==========>>correct since aslongas the unamortized goodwill is59K.

The clients that made up the goodwill were gone on March 10, 2018 (original purchase was June 26, 2017). I had a license from the state until June 30, 2018 so I could have technically serviced clients until that time but I think that for tax purposes, the goodwill was gone when the clients that made up the goodwill were gone (March 10, 2018) so it would be an ordinary loss.=======>agreed I think so too; as i said previously,
the remaining basis in the goodwill would be reported as a capital loss If you held the goodwill for more than 1 year.



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