Purchase-price allocation when the shop is heavy on equipment

Jason Taken will not allocate your classes. HedgeStone will not let the CIM pretend allocation is free. Taxes when selling is the wider map. This page is the iron-versus-goodwill table.

Which § 1060 classes show up on a plant file?

Class I cash and equivalents — usually stripped in a cash-free deal. Class II actively traded securities — rare on a shop floor. Class III accounts receivable — often near face if you sold them, subject to the peg. Class IV inventory. Class V furniture, fixtures, and equipment — the cells, brakes, presses, SMT lines. Class VI and VII intangibles and goodwill.

Manufacturing arguments cluster on IV, V, and VI/VII. Old equipment changes the appraisal input. It does not write the form. Worth may be an OLV floor. Tax basis is still historical.

Census CBP 2023’s 68.4% small-plant share of 284,452 establishments (Source: Census CBP, 2023) means many files have one owner who never thought about 8594 until a buyer’s draft arrived. Think about it in the LOI.

SBA lenders still want a supported valuation and often an M&E appraisal inside a $5 million 7(a) world (Source: SBA). That appraisal is for collateral and eligibility. It is not your 8594.

How should the peg and allocation be drafted together?

The working-capital peg sets how much inventory and AR actually transfer as ordinary-course capital. If the peg excludes E&O, Class IV should not include E&O at book. If the true-up moves cash, the allocation story should not pretend inventory never changed.

QoE may adjust inventory methods. Those adjustments feed both the price chip and the Class IV number. Keep one reconciliation.

What mistakes blow up the week of close?

Agreeing “we’ll allocate later.” Using tax book as if it were FMV. Using OLV as if it were tax law. Forgetting software, tooling, and customer-owned fixtures. Putting the building inside Class V. Ignoring that both sides file 8594 and should match.

Bonus depreciation and § 179 are recovery rules for the buyer after basis is set. They are year-specific. Do not freeze a 2022-era 100% bonus sentence into a 2026 memorandum. The buyer’s CPA verifies the close-year rule.

GF Data Q1 2026 manufacturing recap averages — 7.2x overall, 5.9x under $25 million EV (Source: Iconic GF Data recap) — describe larger-EV earnings multiples. They do not allocate your brake. BizBuySell’s 2.75x SDE median (Source: BizBuySell / Iconic) also does not allocate your brake. Valuation and allocation are different instruments.

BizBuySell’s 223-day 2025 median (Source: BizBuySell) is enough time to exchange a draft 8594 in diligence, not at the signing table.

What does an illustrative Class V fight look like?

Illustrative only.

Enterprise value $1.6 million. Seller’s mental split: $400k iron, $1.2M goodwill. Buyer’s draft: $1.1M Class V per a going-concern FMV appraisal, remainder elsewhere. CPA recapture estimate on the seller side is large enough to change whether the deal still meets the owner’s after-tax goal. The fix is a modeled middle, a price change, or a structure change — not a stare contest on Friday.

A second file: allocation framework in the LOI, appraisal in week three of diligence, 8594 drafts match, close holds. Paper was early.

What belongs in the LOI paragraph?

A statement that the parties will allocate in good faith consistent with § 1060, a commitment to exchange drafts by a date, and a note that inventory will follow the peg definition. Optional: a collar on Class V. Counsel writes it. The intro call with Jason Taken can flag whether your iron is the deal.

Sell my manufacturing business is the pillar.

How do tooling, software, and customer-owned fixtures scramble Class V?

A mold the customer paid for is not your Class V asset. A mold you paid for and use on a proprietary SKU might be. A seat of CAM software with a named-user license may not transfer the way a mill transfers. A custom end-of-arm tool built for one OEM program may be worthless to the next book. If the 8594 draft treats all of that as “equipment” at appraisal FMV, you will argue on Friday.

Build a three-column schedule before diligence: owned and transferable M&E; licensed software and controls; customer-owned or consigned items. Give it to the CPA and to the appraiser. Old equipment already asked for serials. This schedule asks for title.

Fixtures welded to the slab sit on the border of real property and personal property. That border is a state-law and tax-class problem. Do not let the building allocation and the Class V allocation both claim the crane rail.

What should sellers bring to the first CPA allocation meeting?

Tax basis by asset class if you have a depreciation schedule that ties. A machine list that matches the depreciation schedule — or an honest list of orphans. Related-party leases. Whether any prior 1031 or cost-segregation study exists on the plant. The hoped-for close quarter. Whether a note or earn-out is likely. Entity type and built-in-gains facts if you are an S corp with C history.

Then ask the CPA to model two 8594 drafts: buyer-heavy Class V and seller-heavy VI/VII. The gap is the conversation. A single “we’ll be fair” sentence is not a model.

SBA appraisals still exist inside the $5 million 7(a) world (Source: SBA). Bring that report to the CPA after it arrives so the tax draft and the collateral draft are not strangers. They will not match. They should not contradict without a sentence.

How do you keep 8594 from becoming a personality fight?

Set a date in the LOI. Exchange drafts. If the gap is wider than a collar you can live with, change price or structure instead of insulting the other CPA. Inconsistent filings are how exams start. Matching filings on a number neither side loves are how adults close.

Illustrative only: $2.0 million asset deal, $700k of tax basis in iron, buyer wants $1.3M on Class V, seller wants $500k. After models, they land at $900k Class V, remainder elsewhere, price unchanged. Recapture is real and known. December holds.

How should software, tooling cribs, and cranes be split so two appraisers do not double-count?

Cranes on rails can be personal property or fixtures. Software seats can be licenses that die at assignment. Tooling cribs can be inventory or M&E. Give each item one home on a schedule before anyone appraises. If the M&E appraiser and the inventory count both claim the same $80,000 crib, the 8594 will not save you from a true-up and a class fight at the same time.

Ask the CPA to mark each line with a tentative class. Then let counsel and the appraisers disagree on paper, early. Friday-night disagreement is how December slips.

Illustrative only: crane appraised in M&E and also treated as part of the building cap-rate story. Two buyers, two models, one confused seller. A one-page title schedule in month two would have been enough.

What happens when tax book, OLV, and buyer FMV are three different numbers?

They will be. Tax book is historical. OLV is an orderly-sale conclusion. FMV in continued use is a going-concern conclusion. 8594 is a negotiated tax allocation informed by those numbers and by the deal. Do not pick one number and call the others lies. Put all three on a page and let the CPA model recapture under two allocations.

Illustrative only: tax book $280k, OLV $640k, buyer FMV $910k, EV $1.7M. The fight is real and bounded. The owner who pretended tax book was FMV walked into a larger surprise.

How should you treat rebuilt components that have a different tax life than the parent cell?

A 2024 spindle in a 2006 housing can confuse depreciation schedules and 8594 drafts. List major rebuilds as lines. Give the CPA the invoices. If the buyer wants those rebuilds in Class V at FMV, the recapture model should include them. Hiding rebuilds to “keep goodwill high” is how exams start.

Illustrative only: $90,000 documented retrofit, listed, modeled. Allocation draft matches. The twin file that left the retrofit in a shoebox argued on Friday.

How should you treat vehicles, forklifts, and trailers that sit outside the cell list?

They are still Class V or they are excluded. List VINs. If a pickup is personal, take it out of the company before the teaser or exclude it in writing. Mixed title is a Friday problem.

A last allocation habit: keep a running 8594 draft in the same folder as the machine list so rebuilds and exclusions stay aligned. When a cell is pulled from the deal, pull it from the draft the same day. Orphan lines are how Friday nights start.

One more allocation note: if a cell is leased, it is not Class V you sold. It is a payoff or an exclusion. Mixing leased iron into the 8594 draft is how Friday starts with a lessor and a CPA in the same argument.

If a fixture is welded to the slab, ask counsel whether it is personal property before the 8594 draft claims it twice, once as iron and once as dirt.

Educational information only. Form 8594 is a CPA filing. No class split on this page is advice.