Purchase price allocation schedule: a template you can actually use
Short answer
A purchase price allocation schedule is the exhibit to an asset purchase agreement that splits the total price, including any liabilities the buyer assumes, across the assets being bought. It lists each asset by IRS class (I to VII), its fair market value, the amount allocated and the support for that value, with goodwill taking the residual. Both sides then report the same class totals on Form 8594.
Most small business purchase agreements say something like "the purchase price shall be allocated as set forth on Schedule 2.4," and then the schedule is either blank at signing or a single line that says "goodwill: balance." That works until both sides sit down with their tax preparers and discover they meant different things. This page gives you a schedule format that lines up with Form 8594, a filled-in example, and the decisions you need to make before the numbers go in. It isn't tax or legal advice; your advisers should review the final version.
What the schedule has to do
The schedule has three jobs. It sets the buyer's tax basis in each asset, which drives depreciation and amortization for years. It sets the seller's amount realized on each asset, which decides how much of the gain is ordinary income and how much is capital gain. And it gives both sides the class totals they each report on Form 8594. If the schedule can't do all three, it isn't finished.
Under Section 1060, if buyer and seller agree in writing on the allocation or on the fair market value of any asset, that agreement generally binds both of them. The IRS can still challenge it. A party who later wants to walk away from the agreed numbers faces the strict standard the regulations borrow from the Danielson case: roughly, proof that would change or void the contract between the parties, such as fraud, mistake or duress. So the schedule is a commitment, not a placeholder.
The template
Use one row per asset or per group of similar assets, sorted by class. These are the columns that earn their place:
| Column | What goes in it | Why it matters |
|---|---|---|
| Class | I to VII, using the Form 8594 definitions | The residual method fills classes in order |
| Asset or group | "Trucks (6), see Exhibit A fleet list", "Customer contracts" | Ties to the bill of sale and the asset list |
| Fair market value | Gross value on the closing date, not reduced by liens | Caps the allocation for Classes I to VI |
| Allocated amount | Consideration assigned to the asset | Becomes buyer's basis and seller's amount realized |
| Support | Inventory count, equipment appraisal, intangibles valuation | What you show if the allocation is questioned |
| Buyer recovery (optional) | Inventory sold, MACRS class, 15-year Section 197 | Shows each side what the numbers mean |
Two rows sit above the asset rows: the cash price and the liabilities the buyer assumes. Together they are the total consideration. Treasury regulation 1.1060-1 works this way in its own example, where a buyer pays $3,000 in cash and assumes $1,000 of liabilities, for total consideration of $4,000.
A filled-in example
Illustration, not a real deal
Say you're buying the assets of a commercial landscaping company. You pay $1,250,000 in cash and take over $50,000 of customer prepayments the seller has already collected, which you'll have to work off. You don't buy the seller's cash or receivables. The supporting work produced these fair market values on the closing date: inventory (plants, mulch, parts) $35,000 from a count; trucks, trailers and mowers $310,000 from an equipment appraisal; customer maintenance contracts $180,000, a five-year non-compete $40,000 and the trade name $25,000 from a valuation of the intangibles.
- Total consideration: $1,250,000 cash + $50,000 assumed liabilities = $1,300,000.
- Class I: no cash acquired, so nothing comes off. $1,300,000 remains.
- Classes II and III: none acquired. $1,300,000 remains.
- Class IV: inventory at $35,000. $1,300,000 − $35,000 = $1,265,000 remains.
- Class V: equipment at $310,000. $1,265,000 − $310,000 = $955,000 remains.
- Class VI: $180,000 + $40,000 + $25,000 = $245,000. $955,000 − $245,000 = $710,000 remains.
- Class VII: goodwill takes the residual, $710,000.
Check: $35,000 + $310,000 + $245,000 + $710,000 = $1,300,000. On Form 8594, line 4 shows Class IV $35,000, Class V $310,000, and Classes VI and VII combined at $955,000, because the form reports those two classes as one figure.
Decisions to make before filling it in
Which assets are actually transferring
Start from the bill of sale and the excluded-assets list, not the seller's balance sheet. Seller-retained cash, receivables, personal vehicles and the owner's life insurance policy shouldn't appear. Leased equipment the buyer only assumes the lease on is not an owned asset; interests under leases of tangible property are also excluded from the Section 197 intangible list.
The cut-off date for values
Values are as of the purchase date. Inventory counts taken weeks before closing need a roll-forward. For SBA-financed deals, the equipment figures should be consistent with any equipment appraisal the lender relied on for collateral, even though the lender applies its own haircuts.
How to treat transaction costs
Treasury regulation 1.1060-1(c)(3) splits costs into two kinds. Costs specific to one asset, such as real estate transfer costs or the cost of perfecting a security interest, adjust that asset's allocation. General costs of the deal, such as non-specific appraisal or accounting fees, don't get pinned to any asset; they change the total consideration, which in practice usually lands in goodwill. Your schedule should state which costs it already includes so nobody counts them twice.
Non-compete and consulting payments
A covenant not to compete signed as part of the deal is treated as an asset transferred in the acquisition, and it sits in Class VI. Payments for the seller's consulting after closing are different: they are pay for services, not purchase price, and shouldn't be on the schedule at all. On SBA loans the seller can consult for no more than 24 months. Keep the two documents separate and the amounts clearly labelled.
Contingent or deferred amounts
Form 8594 asks the buyer and seller, in line 6, to report the maximum consideration that could be paid under related agreements such as a non-compete, lease or employment contract, assuming any contingencies are met. Seller earnouts aren't allowed on SBA change-of-ownership loans, which simplifies things, but a seller note is still part of the price and belongs in total consideration.
The clause that goes with it
A schedule without a clause invites arguments. The commercial points most agreements cover, which your lawyer will draft in the agreement's own style:
- The price (plus assumed liabilities and other items treated as consideration for tax) is allocated per the schedule, prepared under Section 1060 and the regulations.
- If the schedule isn't final at signing: who prepares the draft, by when, how long the other side has to object, and who resolves disputes (often an independent accountant, with fees split).
- Both parties file Form 8594 and their returns consistently with the schedule and don't take inconsistent positions unless required by a final determination.
- Any post-closing price adjustment is allocated the way the Form 8594 instructions require, and the affected party files a supplemental statement.
- Each party tells the other if the IRS questions the allocation.
When the price moves after closing
Working-capital true-ups and buyer rebates change the consideration. The Form 8594 instructions set the order. An increase is allocated starting at Class I and moving up through the classes, never above an asset's fair market value except in Class VII. A decrease comes off Class VII first, then VI, then V and so on down, and no asset goes below zero. If the change happens in the same tax year as the sale, it is treated as happening on the purchase date. If it happens later, the affected party files a new Form 8594 with Parts I and III for that later year.
In the landscaping example, a $30,000 rebate paid by the seller in the following year would reduce goodwill from $710,000 to $680,000. On an SBA loan, a rebate tied to performance must also go to pay down the 7(a) loan principal, so the same event shows up in the loan file and on the supplemental Form 8594.
Checks before anyone signs
- Total of all rows equals cash plus assumed liabilities plus any other consideration.
- No row in Classes I to VI exceeds its supported fair market value.
- Goodwill is the residual, not a negotiated plug that leaves other rows above value.
- The non-compete row matches a signed non-compete with real terms.
- Equipment rows match the fleet and equipment list attached to the bill of sale.
- Class VI and VII totals can be read straight onto Form 8594 line 4.
- Both tax advisers have seen it.
For the step-by-step method behind the numbers, see Section 1060 and the residual method; for more worked cases, including one where the price doesn't cover the equipment, see purchase price allocation examples. How intangible values are built is covered in PPA intangible assets. Rules checked against the Form 8594 instructions (Rev. 11/2021) and the eCFR as of October 2026.
Common questions
Does the schedule have to be in the purchase agreement?
No rule forces it into the agreement itself, but Form 8594 asks whether the parties agreed an allocation in a written document signed by both. A signed exhibit or side letter is the usual way to do that, and a written agreement generally binds both parties under Section 1060.
Can we agree the schedule after closing?
Yes. Many agreements say the buyer prepares a draft within a set period after closing, the seller can comment, and an independent accountant settles disputes. The risk is that the parties never agree and file inconsistent forms.
Do assumed liabilities go on the schedule?
They are part of the consideration being allocated, so they increase the total. They are not listed as assets. The Treasury regulation examples add liabilities the buyer assumes to the cash paid to get total consideration.
Who should prepare the schedule?
Usually the buyer's adviser drafts it, because the buyer needs asset-level basis for depreciation. Material values should rest on appraisals or a valuation of the intangibles, and both sides' tax advisers should review it before signing.
Related guides
Sources
This guide explains rules and practice in plain English. It isn't legal, tax or credit advice, and SBA and IRS rules change. Check the current SOP, regulations and your lender's requirements before you rely on anything here. Examples with made-up businesses are illustrations, not real deals.