The seller financed the whole purchase. Can I still depreciate equipment?
Depreciation on a Seller-Financed Business Purchase. Review the facts, records and next steps for your business.
By AE Tax Advisors Team · Updated October 28, 2026
Financing and tax basis are separate questions. Identify the acquired assets, price allocation, financing terms and readiness for use; do not infer either zero basis or an immediate full deduction solely from the absence of a cash down payment.
A business-owner scenario
A buyer acquires a repair business using a seller note. The note covers equipment, inventory and goodwill, with one monthly payment. The preparer needs an asset-level opening schedule and an interest analysis instead of recording the note payments as purchases each month.
Illustrative scenario, not a client result.
Work through the transaction
- Reconcile total consideration and the agreed allocation.
- Separate principal from stated or imputed interest questions.
- Document acquired assets and placed-in-service facts.
The mistake that changes the result
Deducting each principal installment as an expense can duplicate or replace the asset recovery that belongs on a separate schedule.
Records that resolve the question
- Purchase agreement.
- Seller note.
- Asset list and valuation.
- Opening balance sheet.
The decision to document
Request a purchase-basis and debt-payment workpaper before the first return. Model actual cash service alongside depreciation and amortization so the forecast does not confuse a deduction with the ability to pay the note.
Which fact changes the answer?
The purchased equipment and goodwill should not share one recovery method simply because one note finances both. Separate the assets first. Then reconcile each monthly payment to the debt schedule, keeping principal reduction apart from expense reporting.
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Related owner questions
- Who deducts software subscriptions that overlap my business purchase?
- We used the seller's bank account for a month after closing. How do we untangle it?
Sources and scope
General educational information prepared with AI assistance. No individual professional review is represented. Apply the relevant tax-year rules to the actual records. Editorial policy · AI disclosure.