Help, sold my domain name after 15 years, how do I file?

[EricDraven]

Ive had a website I made profit from for 15 years. It started to decline over the last 6 or 7 years and I was losing a bit of money on it with server costs and putting in my own time. I got an offer for 30k from someone who wanted the domain name.

So I sold.

Im not sure if this is a capital gain or not. I get that I need to pay some taxes on it but dont think its fair I should pay as if Im flipping domains OR that Ive only paid maybe a total of $800 for the cost of the domain over 15 years and sold for 30k

Its not like I made a profit of $29,200 from the $800 I paid because so much more took place over 15 years and it was a business

Was told fill out form 4797 but I think thats just for property.

I file as sole proprietor....

Any ideas how I go about this?

[RobertB4444]

Assets sold by a company are sold as long term capital gain assets.  Unfortunately, you were correct about the placement.  Virtual assets receive the same treatment as physical assets on your tax return.

On the upside, the tax rate on a long term asset is only 10% so your tax bill is relatively small.  On the downside, you will pay tax on the entire $29,200 that the IRS views as profit on the sale of your domain.

Domain flippers do pay a much higher tax rate, though.

@EricDraven 

[EricDraven]

wow thanks for the quick reply. So I cant use other deductions in maintaining my business ( the domain ) like server costs etc?

I can live with 10% for sure

[Vanessa A]

Probably not.  Over the years, did you expense any of those costs?  If so, then no, you cannot add them back to the cost basis as you would be double dipping.  The cost of a server is depreciated over a 5 year period, this means, you should have already fully depreciated the server (unless you upgraded or got new in the last 5 years) 

Are you disposing of the server as well?  Any of the assets that you had or have that you are disposing of you would need to also report on form 4797. 

Also, when you purchased the domain, did you expense it?  If so, your cost basis would be $0.  Your cost basis is your cost minus depreciation.  So if you deducted that $800 in prior years, then you cannot deduct it from your current sale.  

[EricDraven]

server is paid monthly, but yea i deducted all of these things yearly. Ok 10% isnt bad. What for to I use for this?

[HelenC12]

The sale of your business (Domain) is reported on Form 4797 Sales of Business Property which would then flow to Schedule D Capital Gains and Losses.

Go through your Schedule C Business. 

• You should have set up the Domain name as an asset when you set up your business. 
• If you didn't, you'll have to do that before you can "sell" the Domain name in TurboTax.
• Vanessa A is correct. Did you expense it?  If so, your cost basis would be $0.  Your cost basis is your cost minus depreciation.  So if you deducted that $800 in prior years, then you cannot deduct it from your current sale. 

To get to that section of TurboTax:

1. Open or continue your return
2. Search for schedule c and select the Jump to link in the search results
3. Edit the Asset Domain name.
4. When you get to the Tell Us More About This Asset/Large Purchase screen, select The item was sold, retired, stolen, destroyed, disposed of, converted to personal use, traded in, or given away (or it's no longer being used in this business for some other reason).
5. Continue with the onscreen interview until complete. 

To add an asset:

1. Type sch c in the search bar and click on Jump to sch c in the results box.
2. Either Edit or Review your business.
3. If you get to the First, select the expenses you know you had screen, check Assets and Continue. 
4. On the Add expenses  Check for others   Enter details screen, select Start next to Assets.
5. Continue with the onscreen interview to add your Domain name. If you expensed the $800, set up your basis as $0.00.

[EricDraven]

thank you so much. im confused though,

1. I keep seeing 4797 is only for an actual physical property. Is it ok to file it there?

2. Is this the best way to file it for the lowest amount of taxes to pay or should I just file as income?

3 Ive entered it as an asset but dont see where I can put that I sold it and also I try to fill in form 4797 on the forms page but it wont let me input. Im lost

Im in the turbo tax  pc version but I only see an area marked

Business Assets ( property that is depreciated ) which starts off asking me to go to asset summary

Also, it says youre a Tax expert, does that mean you work for intuit? Just curious. thanks for your detailed reply, I really appreciate it

[GeorgeM777]

Question 1 - As per the advice from @HelenC12, yes, report the sale of your business domain on Form 4797.  Form 4797 includes real, tangible property, but it also includes intangible assets, such as a domain name.  

Question 2 - It is the best way because it is the only way you can report the sale of business property.  Reporting the sale as other income would not be the way to report this sale.  

Question 3 - You report the sale of your domain name in the Business Income and Expenses section (TurboTax CD/download) or in the Other Business Situations (TurboTax online).  Whatever section applies to you, select Sale of Business Property, and enter your information.  Don't use Forms mode if you can avoid it.  Select Step-by-Step, upper right of your screen to go back to the section of TurboTax where you can enter your information.  

Yes, HelenC12 works for TurboTax, as does GeorgeM777.

@EricDraven 

[EricDraven]

Ahhhh, I found it in the step by step. Thank you two for the help. I thought this amount was going to count as a normal taxed income and  put me in a situation where id owe a lot more for my government healthcare but it worked out much better than I thought. thanks

[Rick19744]

I think a few more comments are needed here to help you understand what's going on and clarify a previous comment:

• As you mentioned, you had a business (sole proprietorship) and reported this activity each year; whether that was income or a loss you received the economic benefit each year.
• If you purchased the domain originally, have you been amortizing the purchase price?
  • If so, do you know what your basis is in the domain name asset?
  • You note "only paid a total of $800 over time".  Not sure what this means.
  • Understanding this is key as there could be some ordinary component to your gain.
• You gain on the sale is your selling price (SP) minus your basis in the domain name
• This is generally capital gain, except for any recapture of amortization of the purchase price of the domain name; this component will be taxed at ordinary income tax rates.
• The remaining gain is capital gain and the capital gain tax rate is either 0,15% or 20% depending on your specific taxable income level.  One of the comments indicated 10% which is not correct.
• In conclusion, you do have a gain on the sale as your past yearly business activity has no bearing on the sale of the domain name.  As noted, this activity was taken into account each year you filed a tax return and received the economic benefit in that respective year.

[EricDraven]

@Rick19744 

the $800 was a rough figure.  Probably less. when  I bought the domain name 15 years ago, I had to pay godaddy for each year I own it. If I only had it less for a year then it would be considered a flip I guess and would be taxed as a short term capital gain.

Ive had a website on that domain for 15 years and had passive membership income. Each tax year I write off, cost for running it, servers its hosted on, software etc etc etc.  the last few years I have made less than what Im spending on it

I just wanted to make sure it wasnt taxed as some domain i just bought  for a total of $800 to flip it for 30k. It had a website connected to it that I used as my biz for 15 years

So I just sold the domain name and moved the site to a different url.

I followed the instructions given here in my turbo tax and it seems to be fine. I think, lol

[Rick19744]

Based on your replies, you have deducted all expenses each year you were in business.

As a result, you will pay capital gain tax on the entire $30,000.

As noted previously, the rate will depend on your income level but TT should handle this correctly.

[Chrissan1999]

Hello!

I’m in the same situation as this person except I never wrote off the cost of the domain name over the years.  I bought it years ago and kept the domain name and paid hosting fees on it but never wrote them off.  I’m a sole proprietor and do a Instacart and consulting business. Since I never wrote off the costs of this domain and now I’m selling it how should I handle the tax reporting this year?

[KrisD15]

Report the adjusted basis and selling proceeds for the sale of the domain.

The adjusted basis will be your cost, less depreciation, plus any improvement costs added. 

If you never reported the yearly expenses, you can amend your prior three year returns. 

As a cash method Taxpayer, yearly business expenses need to be reported and taken the year they were incurred and paid.

If you never took depreciation you could "adopt a change in accounting method". 

The IRS is very clear and strict when it comes to Depreciation and Depletion. 

Taxpayers do NOT have an option of bypassing depreciation when selling an asset. The depreciation "CLAIMED OR THAT COULD HAVE BEEN CLAIMED" must be recaptured. 

Please click on this link to learn more on your options. 

@Chrissan1999 

[dimost2]

I sold a domain name I had since 1998 for $10,000 in 2023.

My CPA brother said it would fall under capital gains and that I would pay 1% tax. The previous answer to a very similar question said 10% tax on a long term asset would be due, as well as tax on the income. 

I don't see where to enter that information (the sale OR the income) into Turbo Tax?

Also, should I expect a 1099 from the buyer for the purchase? 

Thanks! 

@DianaOst