One Page At Closing Decides Your First-Year Tax Bill.

There is one page in your closing binder that decides a five figure tax outcome, and most buyers see it for the first time on the day they sign it.

It is the asset allocation schedule. In an asset purchase, you and the seller have to divide the purchase price across categories and report it consistently to the IRS. Equipment here, vehicles there, whatever is left over lands in goodwill. It looks like paperwork. Until recently it mostly was.

That changed, and the change is now permanent.

What Changed And Why It Stuck

Full first-year expensing is no longer on a phase-out schedule.

Bonus depreciation was set to fall to twenty percent in 2026 and disappear entirely in 2027. The One Big Beautiful Bill Act reversed that and restored the hundred percent rate permanently for qualified property acquired after January 19, 2025, with no scheduled phase-down. In January the IRS issued Notice 2026-11, confirming the agency will apply the existing framework and clarifying the acquisition-date test and transition elections.

The mechanics matter for an acquisition. The hundred percent rate applies to tangible property with a recovery period of twenty years or less, which covers most machinery, equipment, vehicles, computers, furniture and certain interior building improvements. It applies to used property, not just new, so long as you have not previously used the asset and you bought it from an unrelated party.

Read that last sentence again. Used property acquired from an unrelated party is a precise description of what you are doing when you buy somebody else’s business.

The Allocation Is Zero Sum

You want the money in equipment. The seller wants it in goodwill. Only one of you gets what you want.

Every dollar you allocate to equipment and vehicles is a dollar you deduct in year one. Every dollar that lands in goodwill amortizes over fifteen years, which on a deal of any size is a rounding error in the first year you own the business.

The seller has the mirror-image incentive. Goodwill generally gets capital gains treatment. Equipment triggers depreciation recapture, taxed as ordinary income on the portion the seller already wrote off. So the seller wants a small equipment number and a large goodwill number, for exactly the reason you want the reverse.

This is not a form. It is a term, and it has a dollar value.

The part that makes it a real negotiation rather than a wish is that both sides must report the same allocation to the IRS. You cannot each file the version you prefer. One number gets agreed and both parties live with it, which means it belongs in your letter of intent alongside price and terms rather than showing up as a schedule someone hands you at the table.

I have watched buyers negotiate a purchase price for six weeks and then sign an allocation schedule in ninety seconds because a lawyer put it in front of them and everyone wanted to be done. That ninety seconds was worth more per minute than the six weeks.

After 35 years of looking at these, the terms that quietly move the most money are almost always the ones that arrive labeled as paperwork.

Where It Lands In Your First Year

The benefit shows up precisely when a new owner is thinnest on cash.

Year one after a closing is when your working capital is under the most pressure. You have paid your down payment, your closing costs, your legal fees, and you are servicing new debt against a business you are still learning. A meaningful first-year deduction lowers your tax bill in exactly that window, which is worth more than the same dollars would be in year four.

Two things to keep straight so you do not overestimate it. This is a tax outcome, not a cash flow outcome, so it does nothing to your debt service coverage and nothing to the bank’s view of your file. And it only applies to asset purchases. If you buy the entity itself, you inherit the seller’s depreciation schedule and there is no step-up to expense, absent a specific election that your accountant would have to be involved in from the start.

It also cannot rescue a deal that does not work. If the coverage is thin or the multiple is high, a first-year deduction does not fix either one, and I would not let a tax benefit talk me into a number the Bulletproof math says is wrong. It is a way to keep more of what a good deal already produces.

How To Actually Handle It

Put it in the letter of intent and bring in your accountant before you agree to anything.

Ask for a fixed asset list with the seller’s book values and ages early in diligence, because that is the document that tells you how much genuinely sits in short-life property rather than in goodwill. Get your CPA to price the allocation both ways before you counter, so you know what a point of movement is actually worth to you. And expect the seller’s advisor to push back hard, because on their side the same movement is ordinary income. Both parties report on Form 8594 and the numbers have to match.

I am not your accountant and this is a genuinely technical area with transition rules that depend on your contract dates. What I am telling you is that it is negotiable and it is worth money, which is more than most buyers know when they sit down.

The terms that move the most money usually arrive labeled as paperwork.

What This Means For You

If you have a deal under LOI right now, ask for the seller’s fixed asset schedule this week and get your CPA to run the allocation before you sign anything. If the deal is already at the closing table, slow down long enough to read that one page, because it is the last term in the transaction that is still open.

See you Saturday.

Mike

The difference between a deal that works and a deal that works well is usually a handful of terms nobody told you were negotiable. I walk through the full framework in the free 28-minute masterclass.

Forward this email. Tell them to grab Mike's free book - Real Estate Is for Suckers: Buy a Business Instead. Same framework Mike uses to stress-test every deal.