2018 Fall issue of Horizons

Not only did the Tax Cuts & Jobs Act, passed in December 2017, have a dramatic impact on taxation for both individuals and businesses, it also provides a significant opportunity for those looking to purchase a business.

Benefits of the new law provides an even more compelling reason for an acquirer to purchase assets rather than the stock or units of a business.

When purchasing a business, consideration must be given to whether the assets or the stock/units of the business are to be acquired.

Business Structure Matters How the business transaction is structured will result in a different tax treatment for both the purchaser and the seller, and can often result in a significantly different purchase price being negotiated depending on what is being acquired. When a purchase of stock (C or S corporation) or units (partnership or LLC) is made, the purchaser capitalizes this purchase price and creates basis in the investment with the purchase. The purchaser, however, has no way of realizing a deduction for the price paid. Only when (or if) there is a future sale will the purchaser benefit from having the basis in the investment through a reduced gain or increased loss on the sale. Contrast this treatment with an asset purchase and you find that when a purchase of assets is made, the purchaser will allocate the purchase price based on the fair market value of the assets acquired. Tangible Personal Property When an acquisition includes tangible personal property, the fair-market value of these fixed assets acquired may be written off immediately under the newly revised bonus depreciation rules. In addition, any excess of purchase price over the fair-market value of the assets acquired may, as always, be written off generally over a period of 15 years as an intangible asset. For tangible personal property acquired after September 27, 2017, the Tax Cuts & Jobs Act allows a 100% bonus depreciation. In a related change that impacts purchases of assets, bonus depreciation now applies to used property. As such, purchasers of fixed assets in an asset acquisition may now receive an immediate tax deduction for the fair-market value allocated to fixed assets.

Fall 2018

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