Tax treatment of domain name transfer?


B

B Wooster

How is a domain name sale handled for capital gains computation?
Say I had a domain name for over 6 years.
Now I sold it (actually, transferred the registration).
This I presume falls under an "Investment Gain".
The sale price is easy.
The cost is hard to compute - what do I include in the cost?

1) Yearly registration fees?
2) Yearly web hosting fess? [If I had not paid for web
hosting, I would not have gotten so much money from
the sale]
3) Long term capital gains apply for assets held over 1 year.
Does this mean I should not include the costs incurred in
the last 12 months to keep this sale as a long term
capital gain sale?

I understand I need to talk to a lawyer, but I did not make
that much money off the domain sale to be able to find the
kind of lawyer who would know these answers, so any thoughts
from the readers of this group would be really appreciated.
 
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T

Tom Healy

How is a domain name sale handled for capital gains computation?
Say I had a domain name for over 6 years.
Now I sold it (actually, transferred the registration).
This I presume falls under an "Investment Gain".
The sale price is easy.
The cost is hard to compute - what do I include in the cost?

1) Yearly registration fees?
2) Yearly web hosting fess? [If I had not paid for web
hosting, I would not have gotten so much money from
the sale]
3) Long term capital gains apply for assets held over 1 year.
Does this mean I should not include the costs incurred in
the last 12 months to keep this sale as a long term
capital gain sale?

I understand I need to talk to a lawyer, but I did not make
that much money off the domain sale to be able to find the
kind of lawyer who would know these answers, so any thoughts
from the readers of this group would be really appreciated.
If this was not held as a business asset, the gain would
probably be a long-term capital gain. The yearly fees would
not be part of basis, only the initial cost of obtaining the
site.

If this was used in your business, you would have already deducted the yearly
costs. As above, the initial cost of the site would be the basis, though you
would have amortized the cost over 15 years as an intangible asset. It's likely
you expensed that cost as well, because it usually isn't a big $ amount. The
gain would be Section 1231 gain, with recapture of any amortization you took.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: (e-mail address removed), since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772
 
L

Linda Dorfmont

How is a domain name sale handled for capital gains
computation?
Funny you should ask. I had one of these a few years ago in
conjunction with the sale of a business. The seller had
developed with website and EXPENSED the development costs,
not capitalized them. Domain registration and webhosting
were also treated as expenses. His basis in the
website/domain name was zero. In the sale we valued the
portion of the purchase price at $2. The rest went for other
intanglibles and the inventory. The domain name was sold as
a capital asset with no basis. All the purchase price was
capital gain.

Linda Dorfmont E.A., CFP, CSA
 
D

D. Stussy

B said:
How is a domain name sale handled for capital gains computation?
Say I had a domain name for over 6 years.
Now I sold it (actually, transferred the registration).
This I presume falls under an "Investment Gain".
The sale price is easy.
The cost is hard to compute - what do I include in the cost?

1) Yearly registration fees?
2) Yearly web hosting fess? [If I had not paid for web
hosting, I would not have gotten so much money from
the sale]
3) Long term capital gains apply for assets held over 1 year.
Does this mean I should not include the costs incurred in
the last 12 months to keep this sale as a long term
capital gain sale?

I understand I need to talk to a lawyer, but I did not make
that much money off the domain sale to be able to find the
kind of lawyer who would know these answers, so any thoughts
from the readers of this group would be really appreciated.
Didn't the IANA (the Internet organization that deals with
the domain registries and IP address assignments) state that
no one OWNS a domain name, but that it is merely a LEASE?

What you may have sold is not the name or right to the name,
but the GOODWILL associated with it. Goodwill generally has
no basis (unless purchased when the business was sold to
you). Your cost is probably zero.
 
S

Seth Breidbart

D. Stussy said:
Didn't the IANA (the Internet organization that deals with
the domain registries and IP address assignments) state that
no one OWNS a domain name, but that it is merely a LEASE?

What you may have sold is not the name or right to the name,
but the GOODWILL associated with it. Goodwill generally has
no basis (unless purchased when the business was sold to
you). Your cost is probably zero.
What happens when someone sells the remainder of a
(pre-paid) lease? Isn't the basis there the amount of
prepayment?

Seth
 
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D

D. Stussy

What happens when someone sells the remainder of a
(pre-paid) lease? Isn't the basis there the amount of
prepayment?
$35/year (or whatever similar amount it is now) pales in
comparison to the $15k sales price of the name. What is
being sold is really goodwill. The basis, although maybe
not zero, is deminimus.
 

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