Asset Purchase: The Buyer-Favorable Structure with Stepped-Up Basis

An asset purchase gives you a stepped-up cost basis on every acquired asset, allowing you to depreciate the full fair market value. Form 8594 allocation determines how those deductions flow across asset classes and directly affects your tax savings over 15 years.

Step-up in basis is the headline benefit. Every asset you purchase gets a new cost basis equal to the allocated purchase price. That means full depreciation and amortization deductions from day one, rather than inheriting the seller's partially depreciated values.

Goodwill amortizes over 15 years. Under Section 197, goodwill and other intangible assets (trade names, customer relationships, non-competes) are amortized on a straight-line basis over 15 years. How much of the purchase price lands in goodwill versus tangible assets directly affects your near-term deductions.

Form 8594 governs allocation. Both buyer and seller must file Form 8594, reporting how the purchase price was allocated across seven asset classes under Section 1060. The allocation is negotiable and has opposite tax effects for each side.

No inherited liabilities. Unlike a stock purchase, you generally do not inherit the seller's unknown tax obligations, pending lawsuits, or environmental liabilities.

The tradeoff: Sellers typically prefer stock sales for capital gains treatment, so an asset deal may require a higher purchase price to get the seller to agree.