![]() Most assets are fully depreciated, so the buyer has little depreciation to reduce the income taxes that may be due in the business.įor sellers, a stock sale is advantageous because the seller must pay capital gains tax on stocks held for more than one year. Most buyers prefer not to structure the transaction as a stock sale because they lose the tax benefit of being able to depreciate the assets. In a stock sale, the buyer doesn’t receive a step-up in basis and inherits the seller’s existing basis in the assets. Where stock sales are concerned, the majority of the purchase price is normally allocated to the value of the stock, with the remainder being allocated to the value of any non-competition agreements, consulting agreements, or any other assets that are personally owned by the seller and not the entity. The seller usually seeks to maximize amounts allocated to assets that will result in capital gains tax while minimizing amounts allocated to assets that will result in ordinary income taxes.
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