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| *Loan,banking and credit>>>business tax |
When a business is gifted to son, what's tax consequence? |
Please help! Facts are: Mother owned a store (soleproprietor) until 9-19-06 and gifted it to her son on 9-19-06. Mother had adjusted basis on only Goodwill and naught on equipments. On the gifted date, the fair market value was $50,000 including equipment ($10,000) and inventory ($2,000) and Goodwill ($38,000) which are higher than mother's adjusted basis. Now, how does mother have to report this gift on her 1040. Of course, she is filing Form 709. How does Son have to report the inventory on his 1040. How does he depreciate the equipment and goodwill? Thank you for your help! Business property. If you hold the gift as business property, your basis for figuring any depreciation, depletion, or amortization deduction is the same as the donor's adjusted basis plus or minus any required adjustments to basis while you hold the property. FMV Equal to or More Than Donor's Adjusted Basis If the FMV of the property is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift. Your mother does not report anything on Form 1040. She would report the gift on Form 709. You would decrease your basis if your mother pays gift tax. You would not report the inventory on Form 1040. You will report any income and loss on Schedule C of Form 1040. Keep track of any depreciable assets like equipment since you will report depreciation expense every year on Sch. C. Source(s): IRS Pub. 551 http://www.irs.gov/publications/p551/ar0... For gifts the donee takes over her low cost basis. Get her final depreciation schedule to 9/19/06 and use that as your first schedule. The market values do not impact your cost basis. I do not do homework! AS A BUSINESS WRITE OFF. THEN THE SON TAKES OVER THE TAXES THAT IS MADE FROM THE BUSINESS. |
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