Business Damage

[DevM]

Having a brain Freeze..

Client had a business (Retail store) and did not own the building. State condemned the area to expand for highway. State paid to the client $$$ for Business damage. Landlord paid $$ to break the lease. Client incurred attorney fees and so on.

Is Business damage $$ taxable..? and how about $$ from landlord for breakage of lease..?

[imjulier]

Off the top of my head, I think both would pass through to the business as taxable (in the form of revenue or offset to rent expense). Bottom line will balance out with less actual revenue received (if there really was business damage) and expenses in the form of moving the business or possibly increased rent. It makes sense to me that all this would roll together to show the actual results of the business income/expense. If there are other facts to consider, let us know.

Julie

[mcb39]

Isn't that kind of like when they run a highway across your land and give you a payout. That is income whether you wanted the highway there or not. I believe that Julie is correct.

[DevM]

Off the top of my head, I think both would pass through to the business as taxable (in the form of revenue or offset to rent expense). Bottom line will balance out with less actual revenue received (if there really was business damage) and expenses in the form of moving the business or possibly increased rent. It makes sense to me that all this would roll together to show the actual results of the business income/expense. If there are other facts to consider, let us know.

Julie

Client was set up as a sole proprietor and has moved to a different state. Did not start another business until this year. New Business ins under S Corp.

Previous accountant has depreciated everything so all of it is Income..?

[OldJack]

>>Previous accountant has depreciated everything so all of it is Income..? <<

Assets from a proprietorship that ends are considered as distributed tax-free to the owner with the owner taking the tax basis of the asset. If that asset is then contributed to a corporation owned by the same person in exchange for stock of the new corporation the asset still has the same tax basis in the corporation even if it is recorded by the corporation at FMV.

[DevM]

>>Previous accountant has depreciated everything so all of it is Income..? <<

Assets from a proprietorship that ends are considered as distributed tax-free to the owner with the owner taking the tax basis of the asset. If that asset is then contributed to a corporation owned by the same person in exchange for stock of the new corporation the asset still has the same tax basis in the corporation even if it is recorded by the corporation at FMV.

The assets were abondoned at the time and client moved to another state.

[OldJack]

The assets were abondoned at the time and client moved to another state.

Then I would account for the assets as abandoned on the individual's 1040 form 4797 showing sale price as zero.