New Hampshire ~ Corporate Income Tax: Treatment of the Sale or Exchange of an Interest in a Business Changed

Recently signed legislation changes the New Hampshire business profits tax treatment of a sale or exchange of in interest in a business organization, when for federal tax purposes there is an increase in the basis of the assets. Under the new legislation, the amount of annual depreciation or amortization attributable to the increase in basis of the assets from the sale or exchange of the ownership interest (as recognized by the parties to the transaction for federal income tax purposes) must be added to the gross business profits of the business for each tax period. The gain or loss on the sale or disposition of the asset has to be calculated without regard to the federally recognized basis increase.

However, the legislation also allows an election. For a particular sale or exchange, a business organization may make an irrevocable election to recognize the basis increase of the assets for one or more of the parties to the transaction for federal income tax purposes. If the election is made, the business must make an addition to gross business profits equal to the net increase in the basis of all assets transferred or sold in the tax period that the sale or exchange of the ownership interest occurs. The business may deduct against its gross business profits any annual depreciation or amortization attributable to the increased basis of the assets recognized by the parties. If the election is made, the gain or loss on the sale or disposition of an asset must be calculated taking into account the basis increase. These change take effect for sale or exchanges of interests in business organizations occurring on and after January 1, 2016.

Previously when an interest or beneficial interest in a business organization was sold or exchanged the law required an addition to gross business profits equal to the net increase in the basis of all underlying assets transferred or sold through the sale or exchange of the interest. The increase in the basis of the assets was determined according to the Internal Revenue Code.

Ch. 300 (S.B. 342), applicable to sales or exchanges occurring on or after January 1, 2016

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