Purchase Price Allocations in Real Estate Transactions: Categorizing Assets, Minimizing Tax, Preparing Form 8594

The decisions concerning allocation methods, and amounts allocated to assets purchased or sold, can dramatically affect the tax paid or saved by the seller or buyer. Tax practitioners regularly make these determinations, often after the fact and often with sales agreements lacking detailed asset categories and price allocations. Buyers wanting greater amounts allocated to equipment purchases to take advantage of accelerated depreciation and sellers wanting capital gains treatment for the sale further complicates these decisions.

Section 1060 requires that applicable asset acquisitions use the residual method to allocate the purchase and sales price. Form 8594, Asset Acquisition Statement Under Section 1060, divides assets into seven categories, including cash, personal property, and intangibles. The seventh category is Goodwill. Any dollars remaining after the fair market value of other asset types are placed in categories I-VI, are placed here. Form 8594 is included in the returns of the buyer and seller, and they will not necessarily agree. Partially for this reason, purchase price allocations are frequently challenged by the IRS. Having a reasonable basis and support for allocation methods and amounts is critical.

Listen as our panel of real estate transaction experts explains steps to minimize taxes paid using asset allocations and reasonable methods to withstand IRS scrutiny from the buyer's and seller's perspective.

1. Purchase price allocations
2. Allocation sources and methods
3. Types of gain
4. Buyer-seller negotiations
5. Categorizing assets
6. Section 338 election
7. Preparing Form 8594, Asset Acquisition Statement Under Section 1060
8. IRS challenges

The panel will review these and other critical issues:

• Categorizing assets under Section 1060
• Determining the fair market value of assets by category
• Preparing for IRS challenges to purchase price allocations
• Preparing For 8594, Asset Acquisition Statement Under Section 1060
• Taxation of gains by type and recapture

Learning Objectives

After completing this course, you will be able to:

• Determine how to categorize assets under IRC 1060
• Allocate purchase price so that it is respected by the IRS
• Assign the fair market value to assets by category
• Understand the applicable depreciation recapture rules under IRC 1245 and 1250
• Differentiate between depreciation recapture and unrecaptured IRC 1250 gains
• Identify how to calculate IRC 179 recapture on depreciable assets

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).