TaxFinanceDeal Structure
Purchase Price Allocation
Also known as: PPA, asset allocation, Section 1060 allocation
The division of the purchase price across asset classes in an asset or deemed-asset sale. The split decides how much of the seller's gain is capital gain versus ordinary income — and how fast the buyer recovers cost.
WHY IT MATTERS
In an asset or deemed-asset sale the price is allocated across categories — equipment, inventory, customer lists, goodwill, intangibles — and both sides report it on IRS Form 8594. The split sets the tax. For the seller, goodwill is the friendly bucket, taxed as capital gain; equipment carries recapture taxed as ordinary income, and amounts framed as a consulting fee or non-compete are ordinary too. So a buyer who steers the allocation away from goodwill quietly raises the seller's rate on the same dollars. Buyers have their own motive to push — they generally prefer faster cost-recovery assets over goodwill, which amortizes slowly over 15 years. Because the two sides collide here, the allocation should be negotiated and fixed in the purchase agreement, not left to the buyer's discretion.