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You can use any price that the seller and the buyer agree on, so selling the contract for the gross income is one way of establishing a price. Doing a survey of the cost of purchasing the same type of business in your area is another.
The useful life is 15 years, UNLESS, it is stipulated in the contract that the life of the contract, including intangibles, such as goodwill, is for a set # XXXXX years
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The purchase & sale agreement can stipulate the amortizable life of an intangible for tax purposes?
In regard to the purchase price, I was asking if 1x revenue was an industry standard, or how could that be determined. I guess you could discount the future value. Just thinking.
There are factors OTHER than just the MACRS table when it comes to useful life. Please see below:
If you're asking how do you establish Fair Market Value for an asset, basically its the $ value that a buyer is willing to pay for an asset.
There is no industry standard, although comparing the cost of similar businesses in the area is probably the most tried and true method although as I said, you can sell the business for any $ amount that you and your purchaser agree on
OK, thank you. So, I would say if the service contract, for example is for a 3 year period, I would depreciate it over 3 years. Is that the correct interpretation in your opinion?
Yes, if you have determined that 3 years is the useful life and you put that in the contract
Is there anything else I can help you with today?
No, thanks for following up!