The short answer: When you buy a business as an asset purchase, you get a stepped-up basis in what you bought and then recover that cost as deductions: goodwill and intangibles amortize straight-line over 15 years under Section 197, equipment can often be written off 100% in year one under bonus depreciation, and a cost segregation study accelerates deductions on buildings. The single biggest tax decision is asset vs. stock sale, and how your buyer entity is set up. This is educational; run every number by your own CPA.
Start here, the six buyer-side tax topics
Each guide below stands alone, but they build on one another. If you read only one, read asset vs. stock sale first, it decides how every other lever behaves.
Why the buyer's side is different
A seller wants capital-gains treatment and hates anything that creates ordinary income. A buyer wants the opposite: the biggest, fastest deductions the law allows. Those two goals collide inside a single purchase agreement, most sharply in the asset-vs-stock decision and the purchase price allocation across asset classes. Knowing what you're fighting for is worth real money at the negotiating table.
| Lever | Buyer wants | Seller wants |
|---|---|---|
| Deal structure | Asset sale (step-up) | Stock sale (one level of tax, cleaner) |
| Price allocation | More to equipment (fast write-off) | More to goodwill (capital gain) |
| Covenant not to compete | Amortize over 15 yrs | Avoid, it's ordinary income |
| Depreciation recapture | Doesn't apply to buyer's future | Wants to minimize recapture at ordinary rates |
The seller signs the check on the front. The buyer decides, for the next 15 years, what the tax code gives back.
The five deductions a buyer inherits
An asset purchase spreads the price across categories the IRS calls "asset classes" (reported on Form 8594). Each class has its own recovery rule:
- Class V, tangible equipment (machines, vehicles, fixtures): often written off 100% in year one via bonus depreciation or Section 179.
- Real property (buildings): 39-year straight-line, but a cost segregation study can carve out 5-, 7-, and 15-year components.
- Class VI, identifiable intangibles (customer lists, non-competes): 15-year Section 197 amortization.
- Class VII, goodwill & going-concern value: also 15-year Section 197 amortization.
- Interest on the acquisition loan: generally deductible against business income (subject to §163(j) limits for larger businesses).
Valuation and taxes are linked
The purchase price you negotiate, see valuation and how much to offer, becomes your tax basis. Every dollar of price is a dollar you eventually deduct. That's why buyers and sellers fight over the allocation, not just the total.
Model a deal before you tangle with the tax
Price it, stress-test the cash flow, then take the structure to your CPA.
Frequently asked questions
Yes. In an asset purchase you get a stepped-up basis and then recover it through deductions: 15-year goodwill amortization, 100% bonus depreciation or Section 179 on equipment, and accelerated depreciation on real property via cost segregation. These can shelter much of the acquired income in the early years.
An asset sale is almost always better for the buyer: stepped-up basis, fresh depreciation and amortization, and no inherited tax liabilities. A stock sale gives you the seller's old carryover basis and no step-up, unless a 338(h)(10) election converts it into a deemed asset sale.
Acquired goodwill and other Section 197 intangibles amortize straight-line over 15 years (180 months), beginning the month you acquire the business, whether the intangible is goodwill, a customer list, or a covenant not to compete.
