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Allocation of Purchase Price

Allocation of Purchase Price for Property and Business Acquisitions

Buyers of companies and improved property must allocate the transaction price between non-depreciable assets such as land, and depreciable assets such as buildings, land improvements, tenant improvements, fixed equipment, moveable assets, personal property, etc. The allocation must be based upon the appraised Fair Market Value In Use of all the assets acquired, balanced to the final purchase price. This establishes the basis for Federal and State income tax depreciation, which is deducted from taxable income, reducing income taxes, and increasing cash flow.

Paragon’s services are directed toward the following objectives:

  • Optimize future tax benefits for buyers by providing the basis for maximizing future cash flow
  • Subsequent renovation of existing space generally involves removal of existing build out such as ceilings, floor finishes, light fixtures, ductwork, walls, wiring, plumbing, etc.
  • Estimate the proper allocation and market value of real and personal property for local property tax reporting and assessment purposes
  • Estimate and segregate non-insurable portions of the property from the insurable portions, and develop current replacement costs for insurance purposes
  • Estimate realty transfer taxes prior to closing, and identify and value personal property exempt from such taxes
  • Create new fixed asset accounting records based upon verified physical inventory and new cost basis resulting from the purchase price allocation
Property Type Purchase Price Personal Property Taxes Saved Years 1-6
Office Building $20M $ 5M $1.7M
Retail Center $15M $ 3M $1.0M
Hotel $40M $12M $4.1M
Call Center $15M $ 6M $2.0M
Manufacturing Plant $50M $15M $5.2M
Distribution Center $25M $ 3M $1.1M

Success Story

A 100,000 sq. ft. cold storage warehouse facility was purchased for $11 Million. The detailed Fair Market Value allocation resulted in 5 year property of $2.4 Million and a 6 year tax savings of $750,000.