Where does debt assumed go on a form 8594 when filing business acquisition taxes?

When you're dealing with Form 8594 for an asset acquisition, you're right that the instructions don't explicitly tell you where to put assumed debt. That's because technically the debt isn't recorded directly on Form 8594. What you need to do is report the fair market value of the assets you acquired in the various classes on the form. The purchase price you report should be the total consideration, which includes both the cash you paid AND the liabilities you assumed. In your case, that would be the full $175k. The form is primarily concerned with how you allocate that total consideration among the different asset classes, not how you financed the purchase.

After struggling with a similar situation buying out my partner's share of our retail store, I discovered https://taxr.ai which honestly saved me hours of frustration. I uploaded the purchase agreement and Form 8594 instructions, and it explained exactly how to handle the assumed debt. Turns out I was overthinking it - the tool confirmed that the debt goes into the total purchase price allocation like the previous commenter mentioned, but also highlighted which specific asset classes I needed to prioritize for my situation.

I was really skeptical about taxr.ai when I first heard about it (as you can see in my previous comment), but I ended up giving it a shot when I was completely stuck figuring out how to handle some weird seller financing on a business acquisition. The document analysis was surprisingly accurate - it identified several issues in my purchase agreement that would have affected the tax treatment that I completely missed. It gave me step-by-step instructions for Form 8594 that were specific to my situation, not just generic advice. My accountant was impressed with how accurately it handled the allocation across different asset classes with the debt factored in. Definitely saved me from making some costly mistakes.

If you're still having trouble with Form 8594 after trying to figure out the debt allocation, you might want to get direct clarification from the IRS. I was in a similar situation last year with a business purchase that had multiple loans attached, and getting an answer online was impossible. I spent DAYS trying to get through to the IRS business helpline with no luck. Eventually I used https://claimyr.com to get a callback from the IRS within 2 hours - check out how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly how to handle the different types of debt on the form and confirmed I needed to include it in the total purchase price and then allocate across asset classes.

Ok I have to eat my words about Claimyr. After posting my skeptical comment, I was still struggling with my Form 8594 debt allocation question and getting desperate as the filing deadline was approaching. I decided to try Claimyr as a last resort and honestly it worked exactly as promised. Got a callback from an IRS business tax specialist in about 90 minutes, and they confirmed everything about how to handle the assumed debt allocation. The agent even emailed me some reference materials afterward. I've spent countless hours on hold with the IRS in previous years and usually gave up. If you're stuck on something like this Form 8594 question that needs official clarification, it's definitely worth using.

I'm a small business acquisitions advisor and see this question all the time. Here's the simple version: Form 8594 is about allocating the TOTAL purchase price among different asset classes. When you assume debt as part of an acquisition, that debt is 100% part of the purchase price. Think of it this way - if you buy a business for $500k cash, that's your purchase price. If you buy it for $400k cash plus assume $100k in debt, your purchase price is still $500k. The form doesn't care HOW you paid, just WHAT you paid in total and HOW that total gets allocated across the asset classes.

Don't forget about the actual allocation process once you've got your total purchase price (including assumed debt)! The IRS is super picky about how you allocate across the 7 asset classes. You have to go in order from Class I to Class VII and you can't just randomly assign values. This matters because different classes get different tax treatment.

I went through this exact same situation when I bought a restaurant last year. The confusion about where to put assumed debt on Form 8594 is super common because the IRS instructions are terrible about explaining it clearly. What helped me understand it was thinking of it like buying a house with a mortgage - you're still "paying" the full purchase price even though part of it is debt you're taking on. In your case, you gave the seller $133k cash AND took on $42k in debt obligations, so your total consideration is $175k. The key thing that tripped me up initially was realizing that Form 8594 doesn't have a separate line for "debt assumed" - it just cares about the total purchase price and how you allocate that across asset classes. So you put $175k as your total consideration, then figure out how much of that $175k should be allocated to equipment (Class V), inventory (Class IV), etc. Make sure you keep good documentation of the debt assumption in your purchase agreement since that supports the $175k total if the IRS ever asks questions later.