What characterizes a stock sale compared to an asset sale?

A stock sale is characterized by the buyer acquiring the shares of the company, which represents an ownership interest in the company as a whole, rather than acquiring specific assets of the company directly, which would occur in an asset sale. In a stock sale, the buyer does not receive a stepped-up basis in the assets, meaning the tax basis of the company's underlying assets remains unchanged at the pre-sale value. This, in turn, can have implications for future depreciation and taxes when those assets are sold or disposed of by the company.

In contrast, in an asset sale, the buyer typically does receive a stepped-up basis, allowing for a higher depreciation deduction based on the fair market value of the assets at the time of the sale. This distinction is crucial because it affects the overall tax implications for the buyer and the seller after the transaction. Understanding this difference is key for evaluating the financial benefits of choosing one type of sale over the other.