Hopefully you received some professional guidance during the sale process. I will provide some comments:
- A form 8594 needs to be completed and both the seller and buyer need to attach this to their respective tax returns for the year of sale. Obviously, these forms MUST agree.
- The allocation of the purchase price essentially follows the form 8594 from Class I to Class VII.
- Once you have agreed upon the purchase price allocation, then you will need to use the information from the form 8594 to "dispose" of your assets within your Schedule C. Since you most likely had more than one asset, whatever is reflected in Class V will then need to be further allocated among all the assets sold.
- Hopefully your covenant not to compete was a separate agreement or at a minimum specifically detailed within the purchase document.
- You noted that this is structured as an installment sale. Keep in mind as you prepare the installment sale document (form 6252) within your 1040 that ALL depreciation recapture is recognized in the first year. This catches many sellers off guard in that they may not have received sufficient proceeds to cover the tax related to this component. You should be fine if it is only two years as you noted.
- Depending on the $$ involved, you may want to consult with a tax professional
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
