338(h)(10) Election

A 338(h)(10) election is a joint buyer-seller election available in certain stock deals (typically S-corps or subsidiaries) that treats the purchase as a deemed asset sale for tax purposes. The buyer resets the assets' basis to fair-market value, turning the step-up into depreciation and amortization deductions after closing. The step-up follows the price the buyer actually bears: fixed amounts (including a fixed seller note) are generally in basis from closing, but a contingent earnout adds basis only as it becomes fixed or paid, and a note that is later forgiven or defaults reverses the benefit through debt-forgiveness income or a basis reduction. There is no durable free deduction on money that never changes hands. Where the election does cost the seller is character: in a deemed asset sale the price allocation can push more of the seller's gain into ordinary income instead of capital gain. Founders should engage their own tax counsel to model both the structure and the allocation before signing.