Question: How are Capital Gains Handled in the Sale of a Business?
Capital Gains Tax is a tax charged on all capital gains (profits on sales of assets by businesses and on capital shares of corporations by shareholders.
Handling Capital Gains and Losses in the Sale of a Business
When a business is sold, the assets of the business - property, land, equipment, vehicles, furniture and fixtures, and everything of value - is listed in the sale. The purchase price of each asset is also listed (assuming records were kept on the purchase). Then the sale price of each asset is listed. Even though the assets are sold as a "package," there must be a determination of gain or loss on each asset. The IRS says, "The sale of a trade or business for a lump sum is considered a sale of each individual asset rather than of a single asset."
The partnership share of a partner is considered a capital asset and results in a capital gain (or loss) when sold. The shares of a shareholder are capital gains or losses when sold, either as part of a business sale or when a shareholder wishes to be cashed out.
Unrealized Receivables and Inventory
The part of any gain or loss from unrealized receivables (those not yet collected) or inventory items are treated as ordinary gain or loss (not capital gain/loss).