Always do the allocation of purchase price before closing the transaction, it's real money! Business brokers should be able to provide you details and the appropriate IRS form 8594.
Here are the issues:
- Buyer wants shortest depreciation schedule for acquired assets.
- Seller wants tax treatment at capital gains rates, not ordinary income
- Buyer wants to write up value in hard assets so buyer can deduct more in depreciation
- Seller does NOT want to write up assets because it triggers depreciation recapture and tax at ordinary income rates
- Goodwill and intangible assets are 15 year write off for buyer and cap gains rate for seller.
For buyer the difference is WHEN they can deduct the price, for the seller it's the difference between cap gains rates and ordinary income! Big difference!!
Talk to your business broker about how to address this issue in any offers.