How the Purchase Price Is Allocated Between Assets

Why the Price Is Split

When a buyer takes a company's assets, the contract divides the price among them. Typical buckets are equipment and vehicles, inventory, goodwill and sometimes a non compete agreement or real estate.

The buyer needs the split to set its own basis for tax purposes, and the seller needs it to report the sale.

Why It Changes the Tax Bill

Different assets are taxed differently. Gains on some equipment can be taxed at ordinary rates to the extent of past depreciation, while goodwill is generally treated differently. The mix changes how much tax you owe.

Buyers prefer a larger share on assets they can write off quickly. Sellers often prefer the opposite, so the split is a real negotiation.

Sellers and Buyers Must Agree

The buyer and seller usually report the same allocation to the tax authorities. If your numbers differ, expect questions, so settle the split in writing before closing.

Start with the asset list from your property return. See property return when you sell before April 1.

Equipment, Inventory and Goodwill

Equipment is priced at a fair market value. Inventory usually moves at cost. Goodwill is what remains, the value of your name, customers and know how, and it is often the largest piece.

Many sales also include a non compete. Buyers like a clear price on it, but it can carry its own tax treatment.

Tax Is Only Part of the Picture

Your tax is owed on the gain, not the whole price, so your basis in the business matters as much as the price. Your CPA can estimate net proceeds before you accept an offer.

Taxes on the sale are often a far bigger cost than the broker's fee, so planning ahead can matter more than haggling over commission.

Before You Sign

Ask your CPA to model two or three splits. Compare offers on net proceeds, as explained in asset sale or stock sale. This is general information and not tax or legal advice. Request your valuation when you want a range.