If I sell a business and only make what it cost to pay it off - does that count as income?

[Anonymous]

what type of business?. sole proprietorship, single member LLC,.  S-Corp, C-Corp. .  

[TomYoung]

I'm guessing that your statement "only make what it cost to pay it off" means that you borrowed money to buy the business in the first place and when you sold the business the proceeds to you were more or less equal to the remaining balance of the loan.

You might think that because the proceeds from the sale essentially put no money in your pocket because those proceeds went to your lender that the whole transaction, from an income tax perspective, is simply a "push", i.e., no gain or loss, but that's not the case.  You have two transactions here: 1) You sold a business at a gain or loss, 2) You paid off a loan.  

The second transaction is not, usually, an "income tax return" reportable item.  That is, you didn't recognize "income" when you borrowed the money so you don't recognize any "expense" when you pay off the loan.  You do, however, have to report the gain or loss on the sale of the business IRRESPECTIVE of what you did with the proceeds of the sale.

[SweetieJean]

Right. This is similar to selling a home. The amount of any mortgage payoff is not factored into the gain or loss calculation.  It only effects the cash flow.

[Critter]

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