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Seller listed value of leasehold improvements at original cost. Shouldn't they be subject to depreciation?

What value should be placed on leasehold improvements in a purchase price?

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Multnomah County, OR

Gail, if they are trying to justify a higher purchase price, then no. It should be priced at what the market would pay for the equipment and fixtures. Not your fault if they are losing money, or don't like what the fixtures are worth in this market. 10% of new price is pretty standard at an auction.

If you are talking about how to value the equipment as a percentage of the purchase price, in my opinion, the higher the better. The tax write-off for equipment (5 to 7 years typically) is much shorter than goodwill (15 years I think). That will reduce your tax burden in those crucial first few years.

Oct 9, 2009
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hi Gail,

The leasehold improvements should be valued at market value. Many argue about the validity of replacement value - please visit my blog: for my take on this issue. When and if the buyers sell - they will recapture the depreciation at ordinary income rates - thus negating the original advantage they enjoyed from the IRS. Please feel free to post any other questions you might have on my blog.

Thanks So Much
Julie A. Barnes, CPA
President, SBX, Inc.

Oct 5, 2009
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The BAF Group LLC

Your question is confusing: I am uncertain what business you reviewing, but as a Business Broker, normally we don't count anything into leasehold improvements for a small business! The key is Cash Flow, again for a small business. But if you were to deal with leasehold improvements and those kinds of capital expenditures, it would be done at the depreciated value. By depreciating a portion of the cost, they already got paid (in a sense) by the IRS; they are asking to be paid twice for that same amount of money, by having you pay them, as well.

You need to have a CPA take a look at that whole deal. And I would question anything else they tell you at this point, very, very carefully!

Oct 4, 2009

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