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← Series 79: M&A, Tender Offers & Restructuring
Series 79 practice questionmediumStock vs Asset Purchases

Which of the following is a tax advantage of an asset purchase from the buyer's perspective?

  1. AThe buyer can deduct the purchase price against ordinary income immediately
  2. BThe buyer avoids all transfer taxes on the acquired assets
  3. CThe buyer receives a stepped-up basis in the acquired assets✓ Correct answer
  4. DCapital gains on the sale are deferred indefinitely
Explanation

Why C — The buyer receives a stepped-up basis in the acquired assets

In an asset purchase, the buyer receives a stepped-up tax basis in the acquired assets equal to the purchase price allocated among the assets. This higher basis allows for greater depreciation and amortization deductions over time, reducing the buyer's future taxable income. In contrast, a stock purchase preserves the target's existing (often lower) tax basis in its assets, resulting in lower depreciation deductions for the buyer.

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