Purchase Price Allocation: What the Seller Keeps: how each class is taxed to a pass-through seller

2026 law · reviewed September 7, 2026

The Form 8594 classes and the seller's tax on each, for a sole proprietor, partnership, or S corporation (§ 1060; Reg. § 1.338-6(b); §§ 1245, 1250, 1231, 197)
Class	What is in it	Seller's tax	Buyer's deduction
I	Cash and deposit accounts	None	None
II	Traded securities, certificates of deposit	Gain over basis, capital	Basis in the securities
III	Accounts receivable	Ordinary if cash basis; none if already reported	Collected against basis
IV	Inventory	Ordinary income over cost	Cost of goods sold when sold
V	Equipment, fixtures, vehicles	Ordinary up to depreciation taken, then capital	Depreciation, often immediate
V	Land and buildings	Depreciation at up to 25%, then capital	Depreciation over decades; land none
VI	Covenant not to compete	Ordinary income	Amortized over 15 years
VI	Customer lists, trade names, licenses	Capital gain (self-created) or recapture (purchased)	Amortized over 15 years
VII	Goodwill and going concern value	Capital gain	Amortized over 15 years
Not on the form	Consulting or employment agreement	Ordinary income plus payroll or self-employment tax	Deducted as paid

The Form 8594 classes and the seller's tax on each, for a sole proprietor, partnership, or S corporation (§ 1060; Reg. § 1.338-6(b); §§ 1245, 1250, 1231, 197).

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