Is it normal to see goodwill as an item in allocation of purchase price in a sales contract? A buyer wants a large amount allocated to goodwill in the sales contract which is bad for seller since he has to report that amount as an ordinary income in tax return. Is this normal for a MHP transaction? If not, how should a seller respond to the buyer?
I believe the buyer wants this to reduce the taxable value of the land. To achieve a win/win, consult your accountant on allocating a portion of the purchase price to the ‘business’ of running the mobile home park. Also consider allocating value to any POHs. But on none of the acquisitions I’ve worked on has any of this made much difference. We allocated our purchase price to homes, improvements, etc., and none of that was specified in the PSA.
Interested to hear others’ thoughts on this…
-jl-
Thanks for your response, Jefferson! So, you are implying that this is unusual and it is also unusual to see allocation of purchase price specified in the purchase contract. Do, I understand you correctly? Thanks!
You understand that correctly. I’ve only ever heard of allocating price to the park, tools and equipment, and the park-owned homes themselves.
But Frank & Dave would really be the ones to weigh-in on this…
-jl-