Step-up in basis

Definition

The buyer's tax benefit: the price becomes the new depreciable basis.

Why It Matters

It is a large part of why buyers prefer asset sales and sellers often prefer stock sales: the buyer gets to depreciate a freshly stepped-up basis while the seller may face a heavier tax bill on the same structure. Because the benefit and the cost land on opposite sides of the table, the gap is real money and it is negotiable in the price.

In numbers: Allocating $1.6M of a $4M asset deal to equipment lets the buyer depreciate that $1.6M anew; in a stock sale they inherit the seller's remaining basis and lose the deduction.