How the business acquisition cost can be amortized and/or depreciated?

searcher profile

December 23, 2020

by a searcher from University of Cincinnati - Carl H. Lindner College of Business in Bear, DE, USA

I am trying to create a few sample financial models to get some general estimates around the return, debt pay-off time, etc. based on the different deal sizes, EBITDA multiples, and deal structures. I am struggling to calculate the free cash flow due to confusion around depreciates and/or amortization tax deductions for the acquisition cost (purchase price + closing cost). So, I have the following questions:

1. Asset Purchase - assuming that the real estate will be leased, can all of the acquisition cost (purchase price + closing cost) be depreciated and/or amortized over the period of 10 years (or 15 years) when you do asset purchase? Is there anything that you need to pay for during acquisition, but can't be depreciated or amortized?

2. Stock Purchase - How the depreciation and amortization work when you do stock purchase?

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commentor profile
Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA
Assets are usually on a 5-7 useful life, Non-compete is for the length of the non-compete, Goodwill is 15 years. Acquisition costs (legal, acct. broker fee, bank fees) over $10,000 (which can be expensed, is also amortized over 15 years. Inventory is not, working cap is not.

Stock Purchase, you are taking over the Sellers dep schedule but your basis is the selling price.
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Reply by a professional
from Walsh College of Accountancy and Business Administration in Detroit, MI, USA
In addition to Section 163(j) noted above, Sections 163(e)(5) and (i) likely apply to your analysis for U.S. income tax purposes.
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