Form 8594 and Laundromat Purchase Price Allocation
Form 8594 is the IRS Asset Acquisition Statement that buyer and seller each file when a business is transferred as a group of assets. It reports how the price was allocated among asset classes under Section 1060's residual method. Because the tax effects run in opposite directions, allocation is negotiated — and should be settled at LOI stage.
Key takeaways
- Both parties file Form 8594, and both are expected to report the same allocation.
- The residual method orders the assignment, with goodwill absorbing what remains after other classes.
- Buyer and seller want opposite things, which makes allocation a real economic term rather than paperwork.
- Equipment allocation drives depreciation recapture for the seller and cost recovery for the buyer.
- Settle it at LOI stage with both CPAs involved, not at closing.
What the Form Does
Under IRS rules, buyer and seller generally use Form 8594 when a group of assets constituting a trade or business is transferred and goodwill or going-concern value attaches or could attach to it. A laundromat asset sale is a straightforward example.
Each party files the form with their own return, reporting the total consideration and how it was allocated among asset classes. Because the IRS receives both, inconsistency between them is visible.
The Asset Classes in a Laundromat Sale
The residual method assigns consideration in a defined order. In practice, a laundromat allocation involves:
| Class of asset | Typical laundromat content |
|---|---|
| Cash and near-cash items | Rarely material in an asset sale; excluded assets usually |
| Tangible personal property | Washers, dryers, water heating, payment hardware, carts, seating, signage |
| Leasehold improvements | Buildout attributable to the tenant |
| Non-compete agreement | The seller's covenant, valued separately |
| Goodwill and going-concern value | The residual — what remains after the classes above |
Two items deserve care. Equipment is valued at fair market value, which should be supportable from the equipment schedule, its age and condition, or an appraisal — not chosen because it produces a preferred tax result. And the non-compete is a separately valued intangible with its own treatment, which is why it is negotiated alongside allocation rather than as an afterthought.
Why the Two Sides Disagree
| Buyer generally prefers | Seller generally prefers | |
|---|---|---|
| Equipment | More — faster cost recovery, potentially including first-year depreciation on qualifying used property | Less — limits depreciation recapture taxed at ordinary rates |
| Non-compete | More — amortizable | Less — typically ordinary income |
| Leasehold improvements | Depends on recovery period | Depends on basis |
| Goodwill | Less — longer amortization | More — generally capital-gain treatment |
This is a genuine economic negotiation, not a formality. On a transaction at the median laundromat sale price of $250,000 (Source: BizBuySell, 2021-2025), the after-tax difference between a well-negotiated and a poorly-negotiated allocation is frequently larger than the last increment of price the parties argued over.
Why Equipment Allocation Bites Sellers
Laundry equipment is often heavily depreciated. IRS Publication 946 and Notice 2026-11 state that P.L. 119-21 restored a permanent 100% additional first-year depreciation deduction for eligible qualified property acquired and placed in service after January 19, 2025, subject to eligibility and elections, and Section 179 expensing carries its own limits — $2.5 million for tax years beginning in 2025 with phaseout beginning at $4 million, both indexed after 2025.
The consequence at sale: equipment with a low remaining tax basis, sold at a meaningful allocated value, produces gain that is commonly recaptured as ordinary income rather than taxed at capital-gain rates.
A seller who deducted aggressively in earlier years is, in effect, settling up. That is the design of the system rather than a penalty — but it is why an after-tax estimate built on capital-gain rates alone can be badly wrong, and why sellers push back on equipment-heavy allocations.
How to Settle It
- Raise it at LOI stage. Put the allocation approach in the letter of intent, even if the figures are refined later.
- Get both CPAs involved before agreeing. This is a tax question with a negotiation attached, not the reverse.
- Support the equipment number. The equipment schedule with make, model, serial, age, and condition is the evidence. An appraisal is stronger where the amount is material.
- Value the non-compete deliberately, tied to the radius and term actually agreed.
- Write it into the purchase agreement with the class-by-class figures.
- Confirm both parties will file consistently, in writing.
A Worked Allocation
Illustrative, on a $420,000 asset purchase.
| Class | Amount | Basis |
|---|---|---|
| Tangible personal property (equipment) | $210,000 | Equipment schedule, age and condition supported |
| Leasehold improvements | $15,000 | Tenant buildout |
| Non-compete agreement | $25,000 | Three miles, five years |
| Goodwill and going-concern value | $170,000 | Residual |
| Total | $420,000 |
Move $40,000 from goodwill to equipment and the buyer's cost recovery improves while the seller's recapture exposure rises. Move it the other way and the reverse happens. Neither party is being unreasonable; they are optimizing opposite objectives against the same total.
Supporting the Equipment Number
Because equipment allocation carries the most tax weight for both sides, it is also the figure most likely to be questioned. Support it before it is challenged.
What makes an equipment allocation defensible:
- A complete schedule with make, model, serial number, capacity, and install year for every unit
- Condition assessed by an independent technician, not asserted
- Service history showing what has been maintained or replaced
- Evidence of comparable used-equipment values where the amount is material
- A formal equipment appraisal on larger transactions
- Consistency with the replacement schedule used in the price negotiation
That last point is worth dwelling on, because parties trip over it. If a buyer argued during diligence that the equipment is near end of life and deducted a large replacement program from the price, it is difficult for that same buyer to then argue for a high equipment allocation on Form 8594. The two positions have to be reconcilable, and a seller should notice when they are not.
The Non-Compete Allocation
Frequently under-thought, and it carries real consequences.
A non-compete is a separately valued intangible. The buyer generally amortizes it; the seller generally treats the allocated amount as ordinary income. So a buyer pushing value toward the non-compete is pushing the seller toward ordinary treatment, which is the same dynamic as the equipment allocation.
The value assigned should bear some relationship to what the covenant actually restricts — the radius, the term, and the seller's realistic capacity to compete. A $50,000 allocation to a non-compete from a seller who is retiring out of state and has no intention of opening anything is harder to support than the same figure from a seller who owns three other stores nearby.
Negotiate it alongside the rest of the allocation rather than treating it as a boilerplate term in the purchase agreement. See non-compete agreements.
What Not to Do
- Do not leave it to closing. It becomes a last-minute fight when nobody has leverage to spare.
- Do not agree to a figure your CPA has not seen.
- Do not assign an equipment value with no support. An allocation that ignores the residual-method ordering, or assigns a number chosen purely for tax effect, is the kind that draws scrutiny.
- Do not file inconsistently. Both forms reach the IRS.
- Do not treat it as paperwork. It is a term with real money attached.
Summary
Form 8594 reports how a laundromat purchase price was allocated among asset classes under Section 1060's residual method, and both parties file it. Buyer and seller want opposite allocations because equipment drives cost recovery for one and depreciation recapture for the other, with goodwill taking the residual at capital-gain rates. Settle it at LOI stage with both CPAs, support the equipment figure with the schedule, write it into the agreement, and file consistently.
The Next Step
Frequently Asked Questions
What is Form 8594?
The IRS Asset Acquisition Statement. Buyer and seller each file it when a group of assets constituting a trade or business is transferred and goodwill or going-concern value attaches or could attach. It reports how the purchase price was allocated among asset classes, and both parties are expected to report consistently.
What is the residual method?
The ordering required under Section 1060. Consideration is assigned to asset classes in sequence — cash and near-cash items first, then tangible property such as laundry equipment at fair value, then intangibles — with goodwill and going-concern value absorbing whatever remains.
Why do buyer and seller disagree?
Because the tax effects run in opposite directions. A buyer generally prefers more allocated to equipment for faster cost recovery and to a non-compete, which is amortizable. A seller generally prefers more to goodwill for capital-gain treatment and less to equipment to limit depreciation recapture.
When should allocation be settled?
At LOI stage, with both CPAs involved. By the purchase agreement, positions have hardened, and by closing it becomes a last-minute fight over a term that can be worth more than the increment of price both sides argued about earlier.
What happens if we file inconsistently?
Inconsistent Forms 8594 invite examination of both returns, since the IRS receives both filings. The practical protection is to write the agreed allocation into the purchase agreement and have both CPAs confirm they will report it as written.
Sources
- IRS, Instructions for Form 8594 — https://www.irs.gov/instructions/i8594
- IRS, Publication 946 (2025) — https://www.irs.gov/publications/p946
- IRS, Notice 2026-11 announcement on additional first-year depreciation — https://www.irs.gov/newsroom/treasury-irs-issue-guidance-on-the-additional-first-year-depreciation-deduction-amended-as-part-of-the-one-big-beautiful-bill
- IRS, OBBBA business provisions and Section 179 — https://www.irs.gov/newsroom/working-families-tax-cuts-businesses
- BizBuySell, Laundromat and Coin Laundry Valuation Benchmarks, 2021-2025 closed sales — https://www.bizbuysell.com/learning-center/valuation-benchmarks/laundromats-coin-laundry/
This page is general information about laundromat transactions, not legal, tax, or investment advice, and not a guarantee of sale price, timing, or financing approval. Verify current rules with your own CPA, attorney, lender, and the relevant state or municipal agency before acting.