Why do buyers prefer an asset sale?

Two reasons. First, the buyer gets a stepped-up basis equal to what it paid, so it can depreciate the equipment and amortize the intangibles going forward — real future tax deductions. Second, in an asset sale the buyer generally chooses which assets and liabilities to take, leaving unknown or contingent liabilities behind with the old entity. Basis step-up plus liability protection is why buyers push for asset deals.

Why do sellers prefer a stock sale?

A stock sale is typically taxed once, at long-term capital-gain rates on the gain over the seller's stock basis. A C-corporation asset sale, by contrast, is taxed twice — at the corporate level on the gain and again when proceeds reach shareholders. Sellers also like that a stock sale transfers the whole entity, contracts and licenses included, without retitling every asset.

What is a stepped-up basis and why does it matter?

Stepped-up basis means the buyer's tax basis in the acquired assets equals the price it paid, rather than the seller's old (usually lower, depreciated) basis. A higher basis produces larger depreciation and amortization deductions in future years, lowering the buyer's taxable income. In an asset sale the buyer gets this step-up; in a plain stock sale it does not — it inherits carryover basis.

What does a Section 338(h)(10) election do?

It lets the parties legally transact in stock while being taxed as if they sold assets. The buyer gets the stepped-up basis it wants, and the seller is taxed as an asset sale. It requires a qualifying target (generally an S-corporation or a corporate subsidiary), a corporate buyer, and a joint election on Form 8023. Because it changes the seller's tax, the parties usually price the difference into the deal.

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M&A Tax

Asset Sale vs. Stock Sale: The Tax Tension at the Heart of Every Deal

Buyers want asset sales; sellers want stock sales. Understanding why — stepped-up basis, double taxation, and the Section 338(h)(10) election — is how you structure a deal that survives due diligence.

SMAART Tax Team

February 24, 2026

6 min read