Skip to content
Clear Money Guide Calculate fees
Menu

The Seven Asset Classes and Who Wins Each One

Updated July 28, 2026. Quick answer: §1060(a) allocates consideration “in the same manner as amounts are allocated to assets under section 338(b)(5)” — the residual method. Consideration fills seven classes in order, and every class except goodwill is capped at fair market value. Goodwill sits alone in Class VII and absorbs whatever remains, which is why it is the residual and why it is where the negotiation lands.

The classes, in fill order

ClassWhat is in it
ICash and general deposit accounts
IIActively traded personal property, certificates of deposit, foreign currency
IIIMark-to-market assets and debt instruments, including accounts receivable
IVInventory and stock in trade
VEverything not in another class — equipment, vehicles, buildings, land
VI§197 intangibles other than goodwill and going concern value
VIIGoodwill and going concern value

The instructions are explicit on the ordering — reduce by Class I, then allocate to II, III, IV, V and VI in that order, then Class VII — and on the cap: “The amount allocated to an asset, other than a Class VII asset, cannot exceed its fair market value on the purchase date.”

Only Class VII can take more than fair market value. That single asymmetry is the whole reason goodwill is the battleground: it is the only place surplus consideration can legitimately go, and it is the class with the best character for a seller.

And the allocation is not settled by the form — nothing requires the two sides to file matching numbers.

Sources

IRC §453(a), (c), (d), (i); §453A(b), (c) and (d); Temp. Reg. §15a.453-1(c) and (d); §1060(a) and Treas. Reg. §1.1060-1(c) and (e); the asset classes at Treas. Reg. §1.338-6(b) as reproduced in the Instructions for Form 8594; §1042(a), (b), (c); §1202(a)(1) and (c)(1); §6621(a)(2). All read July 2026.

This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.

Related