Installment purchase of business

[B. Jani]

Got a new client who is buying medical office by paying $50k(2009) as down payment and 3 more annual installment (2010-11-12) of $50k each total of $200k.

Am i correct to understand that i have to amortize 200k for 15 years?

What else i should keep in mind.

How do i show on tax return that 50k is paid each year or there is no effect and becomes the base value of the business and comes in to the picture when sell.

Any help is highly appreciated.

Thank you.

[jainen]

>> buying medical office<<

Do you mean a building, or a business? You need to identify the individual assets being acquired, and depreciate or amortize accordingly.

[OldJack]

>>Am i correct to understand that i have to amortize 200k for 15 years?<<

That could not possibly be correct. You need to determine exactly what is being purchased.

[jklcpa]

You need the contract of sale to see exactly what is being purchased. Unless this was structured as a stock purchase, that contract should include the purchase of equipment and fixtures, patient list, goodwill, receivables, any debt assumed, etc. Also ask your client to contact the seller to see if their tax preparer included Form 8594 in the tax return for the year of sale. That form is used to report the allocation of the sales price to the various classes of assets sold or purchased. The seller and purchaser both include this form in their tax returns and the numbers must match.

Once you have the breakdown by class, you need to further allocate the total price for fixtures and equipment to the individual assets so to begin depreciation. You also need to breakdown the total assigned to the intangibles to properly calculate amortization.

The full $200K is recorded on the books of the purchaser, however it is allocated. $50 cash was paid out, and the remaining $150 is recorded as a note payable.

[B. Jani]

Thanks for guiding me to the right direction.

I should have been more clear. Client is purchasing medical practice (Podiatrist Practice). The seller retired and sold practice to my client who is also podiatrist including equipments/furniture/fixtures, patient list etc. I will ask for the copy of the contract to understand what is purchased and how goodwill is allocated. Also will ask for 8594 if one is available.

Other then books, where do i show on tax return the 50k paid in cash and other 3 installment of 50k being paid annually? or should i just amortize based on the class of asset?

Thanks.

[OldJack]

>>Other then books, where do i show on tax return the 50k paid in cash and other 3 installment of 50k being paid annually? or should i just amortize based on the class of asset?<<

The total purchase price would be booked and allocated to all items being purchased with the total also as a liability due the seller even if this is a cash basis. As payments are made it would reduce the liability.

[B. Jani]

Thank you, OldJack.