Do I have to pay capital gain. I am selling my store this year. Please read detail.?

Question

If I sell my supermarket, I mean only the business because I don't own the property. Do I have to pay capital gain. I purchased my business in june of 2005 for $120K and now sell price is around $1.2 million, yes I have improved it this much. Now I have two concerns, first how much taxes do I have to pay, and if I can do 1031 exchang how much time do I have to find a bussines to buy. How can I legaly avoid paying tax.

Answer 1

You cannot avoid paying tax. You can only defer those taxes under certain circumstances.

Do you want to reinvest your proceeds in another business worth at least as much?

If yes, then do a 1031 exchange. Find a qualified professional to guide yo through the process. This will not eliminate the taxes on the gain from the sale of your business, it will only defer those taxes.

If you do not want to do a 1031 exchange, then you will owe taxes upon the sale of your business. How much tax depends on factors such as your original investment, your improvements, and depreciation taken on the business.

In either case, this is not something you want to do on your own. Get someone good to help you.

Answer 2

Hire a CPA to help with the sale and the tax consequences. The sale of a business is an extremely complex issue. There are WAY too many variables involved to give you any kind of meaningful estimate on what your gain or tax liability might be without a careful examination of your books and financial statements throughout the life of the business.

A good CPA who specializes in this can probably assist with a 1031 exchange as well or point you to professionals who can help facilitate one. You cannot just sell one and buy another to qualify it as a 1031 exchange.

The Section 1031 exchange will NOT avoid the tax bite! It will only delay it to some point in the future. When you eventually sell the exchanged business or businesses, the deferred gain will be fully taxable at that time.