Purchase the laundry itself or the corporation?

[Jimedean]

I am in talks to purchase an 8 1/2 year old laundromat. The owner wants to sell the Corporation and won't sell the laundry by itself to save on his taxes. How will that effect me from a tax standpoint? How will that effect My tax status as far as the depreciation of the equipment, my cost basis if I decided to sell in 5 years....Is this Advised? Any other points that may effect me are appreciated.

[Spin_City]

Jamesdean - You had better check with an accountant for a definative answer, but I can tell you this much. I purchased only the laundry. I opened a new corp. and the previous owner closed his corp which had owned the laundry at the time of the sale. What this meant to me is that I got to value the machines (at 60%of the purchase price), and I can depreciate them over 5 years. This saves me alot of $$$ in taxes.

The previous owner had to pay taxes on the sale, making payments to the IRS based on (among other things) how much he had deprecitated the machines against his previous years taxes.

My guess is that if you purchase the corporation, you will keep depreciating the machines in the way that the previous owner had been. They have probably been largely depreciated, so you will be loosing a valuable tax deduction.

I suggest that you talk to an accountant, and get an idea of the $$$ value of the losing the depreciation deduction. Then make 2 offers, 1 for purchase of the corporation, and a second offer for purchase of the machines and business only, with your new corporation purchasing the assets of his corporation.

By the way, if you purchase the corporation, you had better hire a lawyer to fully investigate it to be sure that you know of all exisiting debt and any pending litigation.

My opinion is that you are MUCH better off starting your own corporation. He better give you a good discount to do it the other way.

[Howard]

Forget tax issues, this is a liability issue. When you purchase his corporation you are puchasing ALL current and hidden liabilities. You have no way of knowing what past sins might be held by that corporation and YOU will be liable for them. DON'T DO IT!!!!

[fishmanz]

He may be involved in a more complicated transaction such as a 1031 exchange of like kind property. To you the buyer it is a regular sale, to him it may be a transfer of property and not a sale. Disolving his entire corp may not be an option. This is just theory of a possible senerio.

Certainly a new company by you is best. /ubbthreads/images/graemlins/cool.gif

[azkid]

I don't agree with Howard. You can certainly do some due diligence on the corporation and have a good idea about issues, you can also have language in the deal that says previous owner retains liability prior to transfer date. I would advise you to roll the previous corporation into your new corporation. In my opinion it is truly a tax issue - check with an accountant.

[Duane]

I agree with Howard on this issue. Liability will follow the company and the current owner. What you buy the equipment for will determine your depreciation and property taxes.

What you are really buying is the equipment and goodwill based on the net income. Buying the company may not yield any tax advantages since the previous owner may have already written off the equipment. A higher dollar amount on the equipment and fixtures, rather than more on goodwill, will give a better cash flow.

The seller should be able to sell everything and dissolve the company just as, if not easier than, selling the company. Why he only will sell the company as a whole would make me wonder.

For the best answers you should always use a qualified lawyer and accountant.

Duane.

[kbc747]

Sorry Azkid Howard is dead right. There is no amount of research that can protect you from the prior sins in a corp. The suit may not have even been filed yet, let alone the tax disadvantage. The only way you buy a corp is at a huge discount and even then you roll it over into a new corp.