Brief Definition
A taxable asset deal is a transaction where a buyer purchases specific assets of a company rather than its stock, and the sale is subject to taxation.
Further Explanation
A taxable asset deal is a transaction where a buyer purchases specific assets of a company rather than its stock, and the sale is subject to taxation. In such deals, the seller is taxed on the sale of the individual assets, and the buyer receives a stepped-up basis in the acquired assets, reflecting their fair market value at the time of the purchase. This stepped-up basis can provide future tax benefits to the buyer through increased depreciation deductions.
Example:
Company A decides to purchase the manufacturing division of Company B for $5 million. The assets include machinery, inventory, patents, and real estate.
Company B must pay taxes on the gain from each asset sold based on its original cost and the sale price. Company A, on the other hand, gets to record the assets at their fair market value ($5 million in total), which it can use for depreciation and amortization purposes.