Buyer tax benefits in a funeral home purchase: goodwill amortization, bonus depreciation, and cost segregation

Buyers spend weeks negotiating price and minutes on how that price will be deducted. That is backwards. Two buyers paying the same $3 million for the same funeral home can have very different cash flow in their first three years, depending on how the price is allocated and which elections they make.

This guide is written from the buyer’s side. For the seller’s tax bill, see taxes on selling a funeral home; for a full C-corporation walk-through, see the illustrative C-corp asset vs. stock example.

How does a buyer deduct the price of a funeral home?

In an asset purchase, the buyer gets a new tax basis in each asset equal to the price allocated to it, then recovers that basis on the asset’s own schedule. In a stock purchase, the company keeps the seller’s old basis unless a special election is made.

That difference is the main reason buyers prefer asset deals. Our comparison of asset sales and stock sales covers the legal side.

Under 26 U.S.C. § 197, goodwill, going-concern value, government licenses and permits, customer-based intangibles, and a covenant not to compete entered into with the acquisition are amortized ratably over 15 years, beginning with the month acquired. No faster method is allowed.

What changed with bonus depreciation in 2025?

The 2025 tax law made a 100% first-year allowance permanent for qualifying property acquired after January 19, 2025. For a buyer, that turns vehicles, equipment, and short-lived building components into an immediate deduction.

The amended text of 26 U.S.C. § 168(k) allows an allowance equal to 100% of the adjusted basis of qualified property, and Public Law 119-21 applies the change to property acquired after January 19, 2025. Used property qualifies if the buyer never used it before and the purchase meets the related-party and other acquisition rules borrowed from Section 179. That matters in an acquisition, where nearly everything is used. The IRS issued Notice 2026-11 as interim guidance and repeats that property is not treated as acquired after the date a written binding contract for it is signed.

Section 179 is the second route. Rev. Proc. 2025-32 sets the 2026 limit at $2,560,000, reduced dollar for dollar once qualifying purchases exceed $4,090,000. Section 179 is capped at business taxable income, while bonus depreciation is not, so most acquisition buyers lean on bonus.

Hearses get one more break. 26 U.S.C. § 280F excludes “any ambulance, hearse, or combination ambulance-hearse used by the taxpayer directly in a trade or business” from the passenger-automobile definition, so the annual caps on car depreciation do not apply to them.

How does cost segregation work on a funeral home building?

An engineering-based study splits the building’s allocated cost into 39-year structure, 15-year land improvements, and 5- or 7-year personal property. Only the last two can take bonus depreciation.

The IRS Cost Segregation Audit Techniques Guide, revised February 2025, explains that carpeting, wall coverings, partitions, millwork, and lighting fixtures may be treated as Section 1245 property depending on the facts, and that portions of an electrical system serving equipment can be separated. The guide is examiner guidance, not a ruling, but it shows what the IRS expects a study to support.

In a funeral home, likely candidates include chapel sound and video systems, decorative millwork, carpet, dedicated electrical for prep room and refrigeration equipment, the parking lot, site lighting, and signs. A crematory retort may be equipment or a building component depending on how it is installed. Our guide to valuing funeral home real estate explains how the building’s value itself is set; cost segregation only divides that value, it does not change it.

Large first-year deductions can run into loss limits for owners of pass-through entities, and recapture applies to Section 1245 property if you resell. Your CPA should model both.

What if the deal is a stock purchase or includes preneed liabilities?

A stock purchase usually gives the buyer no new deductions, and assumed preneed obligations complicate the math in either structure. Both points deserve a CPA’s attention early.

When a buyer purchases shares, the company keeps its existing tax basis in every asset. Old vehicles that the seller already depreciated stay depreciated, and there is no new goodwill to amortize. Some deals fix this with an election that treats a stock purchase as an asset purchase for tax purposes, such as a Section 338(h)(10) or 336(e) election, which can be available when the target is an S corporation or a subsidiary. Others convert the seller’s company into a single-member LLC shortly before closing so the purchase is an asset deal for tax. Each route has conditions and can raise the seller’s tax, so it usually comes with a price discussion.

Preneed adds a funeral-specific wrinkle. In an asset deal the buyer typically assumes the obligation to perform outstanding preneed contracts, and assumed liabilities generally form part of the consideration being allocated. When those obligations are deducted, and how trust assets that transfer with them are treated, raises timing questions that general acquisition advisors sometimes miss. Ask for the analysis in writing.

How does the allocation shift the buyer’s after-tax value?

Every dollar moved from goodwill to equipment speeds the buyer’s deduction, and every dollar moved to a consulting agreement is deductible as paid. The seller often prefers the opposite, which is why allocation belongs in the LOI.

From the buyer’s side, the order of preference is usually: inventory and short-lived equipment first, then compensation for the seller’s post-closing services, then land improvements, then goodwill and non-compete, with the building and land last. The seller’s preferences run differently because of ordinary-income recapture and capital-gain rates; our guide to employment and consulting agreements for sellers covers how those payments are structured. Both parties must report the same allocation on Form 8594.

Allocations must reflect fair market value. Pushing goodwill into equipment beyond what an appraisal supports invites an audit adjustment, so have values supported in writing before closing.

What should a buyer settle before signing?

The allocation method, the elections, and who pays for the studies. Those decisions are cheaper before the APA than after.

These are general rules, not tax advice for your deal. Talk to your CPA before you sign the LOI, and use the valuation hub to connect the tax picture to price.