Tax Guidance On Seller Financing
October 01, 2024
by a searcher from Kennesaw State University - Coles College of Business in Atlanta, GA, USA
We're under LOI on a smaller deal. $900K seller note, $50K cash to seller, $200K injection in the business (for sales). We'd like to do an Asset Purchase to take advantage of the assets being stepped up
My question: What are the tax implications for the sellers in an Asset Purchase vs. Stock Sale? How can everyone involved in the deal the entity and sellers) avoid tax burdens?
from University of Michigan in Detroit, MI, USA
For tax purposes, buyers generally prefer an asset deal because they will usually receive a stepped up cost basis in the acquired assets. A stepped-up basis benefits the buyer by enabling him or her to take greater depreciation and amortization deductions on the assets and by reducing the amount of taxable income or gain on a later sale.
As for the seller, the tax outcome will depend on the circumstances. What is the target entity for tax purposes (e.g. partnership?), and what are the assets being sold? For example, if the target is a disregarded LLC, the seller will recognize capital gain or loss or ordinary income or loss, depending on the assets sold.
Let me know if you'd like to discuss further. We have a tax attorney on staff, and always encourage our clients to complete tax review and structuring early on in the deal for this type of reason. Either DM me here or reach out directly at redacted
in New York, NY, USA