A commercial purchase price bundles real estate, tangible personal property, and intangible value into one number. RealAdvice® helps commercial real estate buyers pay only the taxes that they legally owe by separating non-taxable intangible value from taxable real estate at closing.
Every purchase price holds up to three kinds of value. Each is treated differently for tax purposes.
Which of these a purchase includes, and how much, depends on the property and the deal.
State law defines what counts as taxable real property, and in most states intangible value isn’t part of that definition. Florida, for example, defines real property as “land, buildings, fixtures, and all other improvements to land.” Its constitution also bars counties from levying ad valorem taxes, the annual taxes based on value, on intangible personal property.
Other states draw similar lines. In 2014, a California appeals court held that a hotel’s intangible assets had to be excluded from its assessed value (SHC Half Moon Bay, LLC v. County of San Mateo). Because the rules vary by state, every allocation starts with the law where the property
sits.
“Purchase price allocation” (PPA) means different things in different settings:
RealAdvice documents the allocation in a ProperTax Appraisal™, a written report that divides your purchase price among real property, tangible personal property, and intangible value. An MAI (Member of the Appraisal Institute) appraiser values the real estate, and a CPA/ABV (Certified Public Accountant, Accredited in Business Valuation) specialist values the business. Both sign the report. Every dollar of the price is assigned to one of those three categories and backed by the methods and data behind it. We also provide draft purchase and sale agreement (PSA) language, so the buyer and seller agree to the same allocation in the contract before closing.
It divides a property’s purchase price among real property, tangible personal property, and intangible value. For state and local tax, it keeps intangible value from being taxed as real estate.
No. A financial-reporting allocation is prepared for a company’s financial statements. A property tax allocation is prepared for state and local property and transfer taxes, and it follows each state’s legal definitions.
No. The ProperTax Appraisal is restricted to state and local tax use and doesn’t change your federal tax basis.
The allocation should be done before closing, while the buyer and seller can still agree to it in the purchase and sale agreement. The earlier we see the deal, the more options you have.
Ideally, both the buyer and the seller agree to it in the purchase and sale agreement (PSA). RealAdvice provides draft PSA language for your state with the free estimate.