Thanks MWPXYZ for you very informative discussion. BTW, this is an S corp, so we won't be reporting on form 4797. The downpayment is not allocated to a specific asset, she does assign an interest rate to the outstanding note and provide an amortization schedule for that. The purchase is defined in the sales contract: "The purchase price for all of the assets referred to in paragraph 1 is $180,000, attributable as follows: $16,000 to inventory and supplies on hand, $59,000 to fixtures and equipment, $2,000 to the Covenant Not to Compete contained in this Agreement, and $103,000 to the Goodwill of the business".
Her list of fixtures and equipment ($59,000) includes items that have been depreciated and items that have been expensed. I can identify the difference between those and coordinate it with my depreciation schedule so I can determine the gain for certain items that have been depreciated. The rest of the items (things like a microwave, toaster, lights, cups, coffee pots, lots of small equipment), I'm unclear of how to determine gain or loss, technically many of these items probably should be listed as supplies, but they are not.
On my worksheet right now I have Inventory and supplies at $16,000, adjusted basis at $16,000, gain equals zero. For the small equipment I have the value of $20,586, adjusted basis $20,586, gain zero. Three pieces of equipment from the depreciation schedule are not listed on the asset list, so I am going to show them as abandoned, they are fully depreciated and very likely were disposed of previously. Goodwill on my depreciation schedule is $85,000, accumulated amortization is $61,876; and Covenant Not to Compete on my depreciation schedule is $100,000, accumulated amortization is $72,794, the period it applied to is expired (it was for five years), and the current contract makes no mention of any part of that being transferred. Leasehold Improvements were from the original sales contract, are not identified in that contract, and are not included at all in the new sales contract. I've been to this facility many times, it's likely that the LHI are the lanai that was built in front and probably structural work that has long been forgotten, so they probably never really "owned" it and certainly did not retain it.
Are we able to report Goodwill and the Covenant in such a way that we can take a loss on them? When the client bought the business they were part of what they were paying for. I appreciate you help with this and your incite. It always feels better to have another opinion. Mahalo nui loa!