Purchase of Gym

I am working with a client that purchased a gym. It was a cash sale and the owner wanted out, so he determined the FMV of existing equipment and a purchase price was based on that amount. There was no consideration for intangibles (such as existing memberships, as there were not many). My client has a detailed listing of all equipment purchased (including weights, machines, rigging, etc.).

What is the best way to reflect the cost basis of the purchased equipment? Should it all be shown as one line item on the depreciation schedule, with a separate, detailed, asset listing in excel, etc.? Since all would have the same depreciable life?

Almost all equipment is individually below the $2,500 threshold. If it is more beneficial to recognize those expenses immediately, can the de minimums threshold be used for each? Or is this considered a "bulk" sale and it must be reflected as such?

There is also a retail store within the gym. Is there anything I am overlooking by including the retail income/expenses within the same P/L?

Appreciate any insight!

Buyer and seller both need to file Form 8594. There needs to be an allocation in writing so that you can check the boxes "yes" for those two questions. Form instructions are pretty clear about how to allocate the price to determine the allocation to any intangible assets. You still have to make the disclosure, even if there are no intangible assets.

If you write off the cost of the equipment by using the DMSH, do you create a significant loss? What is your client's tax position? What will the tax value of that loss be?

As for the retail store, you need to consider how to account for inventory. If books and records include inventory tracking, then you probably need to use non-essential materials and supplies. If not, you can write off costs when purchased because your tax method will conform to the method used in the books and records. See 1.471-1 regs.

Buyer and seller both need to file Form 8594. There needs to be an allocation in writing so that you can check the boxes "yes" for those two questions. Form instructions are pretty clear about how to allocate the price to determine the allocation to any intangible assets. You still have to make the disclosure, even if there are no intangible assets.

This was already done, but will confirm the amounts shown on internal records tie to forms filed.

If you write off the cost of the equipment by using the DMSH, do you create a significant loss? What is your client's tax position? What will the tax value of that loss be?

The business was slightly profitable for the 6 months it was in operation last year after the purchase. When factoring in the purchase price, it would result in about $50,000 loss. The plan was to discuss the options with the client to determine if we would accelerate the De Minimis expenses to offset against their other income, or defer everything using straight-line. If we go this route, I am assuming all equipment can be combined into one line item for the return (tracked separately for disposition purposes).

As for the retail store, you need to consider how to account for inventory. If books and records include inventory tracking, then you probably need to use non-essential materials and supplies. If not, you can write off costs when purchased because your tax method will conform to the method used in the books and records. See 1.471-1 regs.

I plan on using the methodology allowed for expensing inventory when purchased!

This was already done, but will confirm the amounts shown on internal records tie to forms filed.

The 8594 is filed with the income tax return.

If we go this route, I am assuming all equipment can be combined into one line item for the return (tracked separately for disposition purposes).

Seems fine to me.

I plan on using the methodology allowed for expensing inventory when purchased!

That is what I would want to do also. I wonder what the rules are with the purchase of the business. Is this a new business where you can establish new accounting methods, or are the accounting methods previously established by the seller binding.

The 8594 is filed with the income tax return.

Sorry for the confusion here. This was already done by the seller*. We will be filing it with my client's (the purchaser) return as well.

That is what I would want to do also. I wonder what the rules are with the purchase of the business. Is this a new business where you can establish new accounting methods, or are the accounting methods previously established by the seller binding.

The good news here is there was no previous inventory. The retail store was set up after purchase, so there is a clear delineation for purchases.

Thanks for your insight!