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

Forum|Forum|2 years ago
April 15, 2024
3 replies
23 views

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?

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Best answer by dascpa

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.

dascpa

Level 11

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

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NPChristyAuthor

Level 4

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?

dascpaAnswer

Level 11

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

Level 15

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

Don't yell at us; we're volunteers

BobKamman

Level 15

How would a transcript show how much amortization was claimed?

qbteachmt

Level 15

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

Don't yell at us; we're volunteers

BobKamman

Level 15

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.

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NPChristyAuthor

Level 4

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

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