medium · Investment Banking accounting
What is the primary difference between a 'Stock Purchase' and an 'Asset Purchase' regarding the tax treatment of asset write-ups?
- Asset purchases result in the creation of a Deferred Tax Liability (DTL) on the balance sheet that is amortized down over time and is never repaid.
- In an asset purchase, the write-ups are tax-deductible via depreciation/amortization, whereas in a stock purchase, they are generally not.
- In a stock purchase, the buyer can immediately expense the full dollar amount of any goodwill created for both book and tax reporting purposes.
- Stock purchases are always preferred by buyers because they allow for the immediate, unrestricted utilization of all target NOLs.
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