44.7 Sale of a Proprietorship

The sale of a sole proprietorship is not considered as the sale of a business unit but as sales of individual business assets. Each sale is reported separately on your tax return.

A purchase of a business involves the purchase of various individual business assets of the business. To force buyers and sellers to follow the same allocation rules, current law requires both the buyer and the seller to allocate the purchase price of a business among the transferred assets using a residual method formula. Allocations are based on the proportion of sales price to an asset’s fair market value and they are made in a specific order set out on Form 8594.