Asset vs. Stock Purchase: The Single Most Consequential Tax Decision

Whether you acquire a business's assets or its stock determines how every dollar of purchase price gets depreciated and deducted. This structural choice can create a 15-20% after-tax cost difference—making it the highest-leverage tax decision in any acquisition.

Asset purchase: buyer-friendly tax treatment. You get a stepped-up basis in every acquired asset, meaning you can depreciate and amortize the full purchase price. Goodwill amortizes over 15 years under Section 197. Equipment can qualify for Section 179 expensing or bonus depreciation. The deductions start immediately and compound for years.

Stock purchase: seller-friendly simplicity. The seller pays capital gains on the difference between sale price and stock basis. But the buyer inherits the company's existing asset basis -- often far below fair market value -- which means smaller depreciation deductions for years. You also inherit all liabilities, known and unknown.

Section 338(h)(10) splits the difference. This election lets the buyer treat a stock purchase as an asset acquisition for tax purposes, gaining stepped-up basis while maintaining contract and license continuity. Both parties must agree.

The tradeoff: Buyers almost always prefer asset purchases; sellers almost always prefer stock sales. The tax gap between the two structures can reach 15-20% of the purchase price. A CPA quantifies both sides so you negotiate with real numbers.