Selling my laundromat after 25 years - Do I owe taxes on both business sale AND depreciated equipment?

What your accountant is referring to is called "depreciation recapture." When you sell business assets that you've depreciated, the IRS wants to reclaim some of the tax benefit you received from that depreciation. Here's how it works in simpler terms: When you bought equipment for your laundromat, you were able to deduct the cost over several years through depreciation, which reduced your taxable income. But when you sell those assets for more than their depreciated value (book value), the IRS considers that difference as recaptured depreciation, which is typically taxed at ordinary income rates (not capital gains rates). The sale of your business will likely be allocated between different asset classes - some might be considered capital assets (taxed at capital gains rates) while others might be subject to depreciation recapture (taxed at ordinary income rates). Your equipment falls into this second category. This isn't exactly double taxation since you received tax benefits from the depreciation deductions over the years. Now the IRS is essentially "recapturing" some of those benefits when you sell.

I went through something similar when I sold my printing business last year. The tax implications really caught me off guard! I ended up using https://taxr.ai to help me sort through everything because my situation was getting complicated with all the different assets and depreciation schedules. The tool analyzed all my business sale documents and gave me a clear breakdown of what would be taxed as capital gains vs depreciation recapture. It saved me from making some pretty big mistakes on my tax return. They can handle complex situations like business sales where there are multiple asset classes and depreciation schedules to consider. In your case, they could help you understand exactly how your $300k sale price would be allocated and what tax rates would apply to each portion. It really helped me sleep better knowing I wasn't going to get an unexpected tax bill later.

I used taxr.ai when I sold my restaurant business last summer and it was seriously a lifesaver! I was in almost the exact same situation as you with the laundromat - had depreciated lots of kitchen equipment over 15 years and was completely confused about the tax implications. I was honestly skeptical at first, but they broke everything down into simple terms and showed me exactly what portion of my sale would be taxed at what rate. The depreciation recapture part was way more complicated than I thought! They even helped me identify some strategies to minimize the tax hit that my regular accountant had missed. What really impressed me was how they caught several errors in how my equipment had been depreciated over the years. Those corrections alone saved me about $8,000 in taxes. Definitely recommend checking them out for a business sale situation like yours!

One thing nobody's mentioned yet is that when you sell your business, you're going to need to deal with the IRS directly at some point - especially if there's any confusion about how to handle the depreciation recapture. I've been through this nightmare trying to get someone on the phone who actually understands business sales. After wasting days on hold, I found https://claimyr.com which got me connected to an actual IRS agent in under 45 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c With a complex business sale like yours, you'll likely need to speak with someone at the IRS who specializes in business transactions. Claimyr basically waits on hold for you and calls when an agent is available. Saved me hours of frustration when I was selling my landscaping business last year.

I have to eat my words here. After my skeptical comment about Claimyr, I was desperate enough to try it because I still couldn't get through to the IRS about my business sale questions. I'm honestly shocked - they got me through to a real IRS agent in 52 minutes yesterday when I'd been trying unsuccessfully for months. The agent I spoke with was actually knowledgeable about business sales and depreciation recapture (ask for the business tax department when connected). She confirmed everything others have said here about how the sale price gets allocated between different assets and helped clarify my specific situation. For anyone selling a business who needs clarification directly from the IRS - particularly about how depreciation recapture applies to your specific situation - this service is worth it just for the time saved. Never thought I'd be recommending something I was so skeptical about, but here we are.

One thing I learned when selling my hardware store is that how the sale is structured makes a HUGE difference in taxes. Make sure your purchase agreement allocates the sale price across different asset categories in the most tax-advantageous way possible. For example, more allocation toward goodwill (Section 197 intangible) gets capital gains treatment, while allocation to fully depreciated equipment gets hit with depreciation recapture at ordinary income rates. Get a tax professional involved BEFORE you finalize the sale agreement, not after. The buyer will want allocations that benefit them (usually more toward equipment they can depreciate quickly), while you want allocations that minimize your tax hit. This negotiation is critical!

something nobody mentioned is that you might qualify for qsbs exemption (qualified small business stock) if ur business is structured as a c-corp and meets certain requirements. could save u a TON in taxes, my cousin sold his business last yr and didn't pay any tax on like the first million dollars of gain. not sure if laundromats qualify but worth checking! think you need to have owned the stock for at least 5 yrs which you def have. google "section 1202 qsbs" for more info.

I'm going through something similar with selling my small business, and one thing that really helped me understand the tax implications was getting a professional asset appraisal done early in the process. When you sell your laundromat, the buyer and seller need to agree on how to allocate the $300k purchase price among different assets - equipment, goodwill, customer lists, etc. This allocation directly affects your tax liability. Having a professional appraisal gives you solid documentation for the IRS and helps you negotiate the allocation more effectively. The appraiser will determine the fair market value of your equipment separately from other business assets. If your equipment is worth $80k but you've depreciated $230k over the years, you'll only pay depreciation recapture on the $80k (assuming it's fully depreciated). The remaining $220k of the sale price gets allocated to other assets, which might qualify for more favorable capital gains treatment. This approach saved me thousands in taxes compared to just accepting whatever allocation the buyer initially proposed. Most buyers want to allocate more to equipment since they can depreciate it quickly, but that's often not in your best interest as the seller.

One important thing to consider is the timing of your sale relative to your tax year. If you're planning to retire after the sale, you might have lower overall income in future years, which could put you in a lower tax bracket for the depreciation recapture. You might want to explore an installment sale structure where you receive payments over multiple years instead of a lump sum. This can spread the tax liability across several years and potentially keep you in lower tax brackets, especially for the depreciation recapture portion which gets taxed as ordinary income. Also, make sure you're maximizing any available deductions in the year of sale - things like professional fees for the sale, legal costs, broker commissions, etc. These can all reduce your overall tax liability. Given the complexity of business sales and the significant dollar amounts involved, it's definitely worth getting a second opinion from a tax professional who specializes in business transactions. Your regular accountant might not deal with business sales frequently enough to catch all the potential tax planning opportunities.

Just wanted to add another perspective on installment sales since Malik brought it up - they can be incredibly effective for business sales, but there are some important considerations to keep in mind. Most business assets can qualify for installment sale treatment, but there's a key exception: inventory and depreciation recapture on personal property (like your laundry equipment) generally cannot use installment treatment. This means the depreciation recapture portion would still hit you in year one, even with an installment sale structure. However, the portion of your sale allocated to goodwill, customer relationships, and other intangible assets CAN qualify for installment treatment. So you'd still get some benefit from spreading those gains over multiple years. The buyer would need to agree to seller financing for a true installment sale. Alternatively, if they want to pay cash upfront, you could potentially structure it as a sale to a buyer who then immediately sells to the actual purchaser with seller financing - though this gets complicated and you'd definitely need legal and tax counsel. Another option to consider is a charitable remainder trust if you're charitably inclined. You can transfer the business to the trust, get a partial tax deduction, receive income for life, and potentially reduce the overall tax bite significantly. Not right for everyone, but worth exploring given the size of your transaction.