Form 8594 and Laundromat Purchase Price Allocation

By Jason Taken, business broker · HedgeStone Business Advisors · Updated 2026-09-04 · 9 min read

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:

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

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 and not 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

1. Raise it at LOI stage. Put the allocation approach in the letter of intent, even if the figures are refined later.
2. Get both CPAs involved before agreeing. This is a tax question with a negotiation attached, not the reverse.
3. 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.
4. Value the non-compete deliberately, tied to the radius and term actually agreed.
5. Write it into the purchase agreement with the class-by-class figures.
6. Confirm both parties will file consistently, in writing.

A Worked Allocation

Illustrative, on a $420,000 asset purchase.

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.

Why Is This the Most Overlooked Number in the Deal?

Because it appears late, it looks administrative, and neither party feels it until after closing.

By the time allocation is discussed, the price is agreed, diligence is finished and everyone wants to close. The schedule arrives as one more attachment, and the instinct is to accept whatever the other side's accountant proposed. That instinct is expensive, because the allocation determines both parties' tax treatment of a transaction they have already agreed the total for.

It is also genuinely adversarial in a way most of the agreement is not. Elsewhere in the deal, both sides broadly want the same outcome — a clean closing on agreed terms. Here the interests are directly opposed: a split that helps one side generally costs the other. That is not bad faith; it is arithmetic, and it is why the number should be negotiated rather than assumed.

Two features make it harder to fix later. Both parties file consistently with the allocation, so it is not a private position each side can take independently. And once the agreement is signed with a schedule attached, reopening it means reopening the contract.

The practical instruction is simple and widely ignored: put allocation on the table at the letter of intent stage, alongside price and structure. At that point it is one more term among several and can be traded against others. At closing it is a demand, and demands late in a deal cost goodwill that is needed elsewhere.

Both CPAs should see the proposed split before it is agreed. This is not a document to sign on the strength of it looking standard.

What Makes an Allocation Defensible?

Support, and the support has to exist before anyone asks for it.

An allocation is a statement about what the assets are worth, and it should be capable of being explained. The parties have latitude to agree a reasonable split; they do not have latitude to assign values that bear no relation to the assets.

Equipment should be supported by something. An equipment schedule with model, serial and install year, and a view of value that reflects condition and remaining life. Where a formal appraisal exists it settles the question; where it does not, a documented, reasoned position is far better than a round number.

Any real property follows its own valuation, and where an appraisal was obtained for financing it will govern.

Non-compete consideration should be stated separately and should be plausible in relation to what the covenant actually restricts.

Goodwill is generally what remains, and it will be the largest item on most laundromat sales — which is unsurprising, since the buyer is paying for an operating business, not for a collection of machines.

Two specific traps in this category.

Equipment allocated high can produce a tax consequence for the seller relating to depreciation previously claimed, which is why a seller who has depreciated their fleet aggressively over many years may resist the buyer's preferred split. That is a real cost, not obstruction.

Equipment value can attract state sales or use tax on the transfer, depending on the jurisdiction and whether an occasional-sale exemption applies. A high equipment allocation can therefore create a tax liability that neither party budgeted for.

This is general information rather than tax advice. The consequences depend on each party's own position — depreciation history, entity type, state — and both sides should have their own CPA look at the actual numbers before agreeing them.

What Should You Not 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

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.