Amortization Puzzle - Writing off Partial Acquisition of Company
November 20, 2024
by a searcher from University of Pennsylvania - The Wharton School in Denver, CO, USA
I'm planning on purchasing 90% of a company (current owner will remain a 10% equity holder) via an equity sale. If I purchase 90% of the company for $1.5M am I able to amortize this $1.5M over a 15 year period (i.e. will I be able to deduct $100k against the companies gains over the next 15 years)? Is there any thing specific that I need to do prior to closing or at closing to ensure that I am able to amortize this $1.5M?
Possibly relevant information: the company being acquired is an LLC and will remain an LLC. The 90% of my interest will be held in a holding company (also an LLC).
from University of Pennsylvania in Seattle, WA, USA
1.) You are only ever able to amortize goodwill, not the entire purchase price. Goodwill is the excess of purchase price over book value. If you buy the company for 1.5m and it only has assets of 500k, you have $1m in goodwill that can be amortized over a 15 year life. The assets that are netted from purchase price can be depreciated though, if they still have basis.
2.) Goodwill is only able to be amortized in an asset sale (or stock sale taxed as asset sale) for tax purposes. If you are structuring this as a traditional stock sale, you will not be able to amortize any goodwill. Do note the critical difference that in GAAP accounting for private companies, you can amortize goodwill in a stock sale but it has no taxable benefit, which I assume the question was getting at.
from Harvard University in Denver, CO, USA