You just closed on a $180,000 micro-SaaS acquisition from Acquire.com. The listing said $6,200 in MRR, a clean Stripe history, and a codebase you could actually read. You wired the funds, the seller transferred the repo and the customer database, and now you're staring at a bill of sale with one line: "Purchase Price: $180,000." Your accountant asks what you bought. You say "an app." That answer is going to cost you.
Every dollar of that $180,000 has to land somewhere on your books — and where it lands changes how much of it you can deduct this year versus over the next decade and a half. Buyers who skip this step almost always default to the instinct that feels obvious: "I bought software, so I'll write it off like software — maybe three years, maybe five." For a business acquisition, that instinct is wrong, and the IRS has a specific rule that says so.
The Instinct That Gets Buyers in Trouble
Standalone software — the kind you buy off the shelf, license, or build in-house — usually amortizes fast. Off-the-shelf software available to the general public under a nonexclusive license is typically written off over 36 months under IRC Section 167(f)(1). Internally developed software can sometimes be expensed even faster. That's the mental model most indie developers carry into their first acquisition, because it's the only software tax rule they've ever had to think about.
But a micro-SaaS acquisition isn't "buying software." It's buying a business — and the code just happens to be one of the assets inside it, alongside the customer list, the domain, the brand, any non-compete the seller signs, and whatever goodwill is left over. The moment software changes hands as part of acquiring a trade or business rather than as a standalone purchase, it falls under a completely different set of rules: IRC Section 197, which requires straight-line amortization over 15 years — not 3, not 5.
That's a real cash-flow difference. A $180,000 acquisition written off over 3 years shields roughly $60,000 of income a year. The same $180,000 spread over 15 years shields about $12,000 a year. If you modeled your deal assuming the faster write-off, your actual after-tax cash flow in year one is going to look a lot worse than your spreadsheet promised.
Why the Code Gets Swept Into the 15-Year Bucket
The rule comes down to a single distinction buried in the Section 197 regulations: computer software is a Section 197 intangible if it's acquired in connection with the acquisition of a trade or business — regardless of how good, custom, or separable that code actually is. It doesn't matter that the codebase could theoretically run as a standalone product, or that you could point to a specific dollar figure a contractor would charge to rebuild it. If it came bundled with a business — customers, revenue, brand, the whole operating unit — it's swept into the same 15-year pool as the goodwill.
Section 197 goes a step further with something worth knowing before you negotiate a valuation with your seller: everything in that pool is treated as one indivisible asset, not a collection of separately depreciating pieces. The code, the customer relationships, and the residual goodwill all amortize on the exact same 15-year schedule, no matter how different their real economic lifespans are. A SaaS product with a 3-year realistic technology shelf life gets stretched to write off over 15 years anyway, purely because of how it was acquired.
The Seven Buckets: Where Your $180,000 Actually Goes
The IRS requires both the buyer and seller to allocate the purchase price across seven statutory asset classes using what's called the residual method — value flows through the "hard" classes first, and whatever's left over becomes goodwill:
- Class I — Cash and cash equivalents
- Class II — Actively traded securities
- Class III — Accounts receivable and similar debt instruments
- Class IV — Inventory (rare for a SaaS deal, but relevant if you're buying a business with physical stock)
- Class V — Furniture, fixtures, equipment, and other tangible/fixed assets
- Class VI — Section 197 intangibles other than goodwill: your customer list, the codebase, the brand/trademark, and any non-compete agreement
- Class VII — Goodwill and going-concern value (the residual — whatever's left after everything else is fairly valued)
For a typical micro-SaaS deal, almost the entire purchase price ends up split between Class VI and Class VII — there usually isn't meaningful inventory or equipment, and Classes I–III rarely apply cleanly to an asset purchase. The real work is agreeing on how much of the price is customer list, how much is code/IP, and how much falls to residual goodwill. All three amortize over the same 15 years, so from a pure depreciation-speed standpoint it barely matters how you split them — but it matters enormously for what happens later, when you eventually sell.
Why Your Seller Cares More Than You Might Expect
Here's where the negotiation gets interesting, and where a lot of first-time acquirers get blindsided at the closing table. Buyers and sellers have opposite tax incentives on this allocation, and it's often described as a zero-sum game — one side's tax win is the other side's tax cost.
- You (the buyer) mostly don't care how the Class VI/VII split shakes out, since customer list, code, and goodwill all amortize the same way. Where you do care is Class V — if the deal includes any tangible equipment, faster depreciation there beats the 15-year schedule everywhere else.
- The seller cares a lot. Gains allocated to goodwill (Class VII) typically get favorable long-term capital gains treatment, while amounts allocated to certain other classes can trigger ordinary income treatment through depreciation recapture — taxed at rates that can run nearly twice as high.
Because both parties are required to file IRS Form 8594 (Asset Acquisition Statement Under Section 1060), and the IRS can cross-reference the two filings, mismatched allocations are a known audit trigger. It's not a legal requirement that the buyer's and seller's Form 8594s match exactly, but a wide mismatch invites scrutiny neither side wants. The clean move — and one worth writing directly into your asset purchase agreement — is agreeing on the allocation schedule with the seller before you sign, not after your accountants each file their own version months apart.
A Worked Example
Say you buy a project-management SaaS for $180,000 through an asset purchase agreement:
| Asset Class | Allocation | Buyer treatment |
|---|---|---|
| Class V — laptop, monitor included in the deal | $2,000 | Depreciated over 5 years (or expensed via Section 179) |
| Class VI — customer list (280 paying subscribers) | $60,000 | 15-year straight-line amortization |
| Class VI — source code / codebase | $70,000 | 15-year straight-line amortization |
| Class VI — non-compete (seller agrees not to launch a competitor for 2 years) | $8,000 | 15-year straight-line amortization |
| Class VII — goodwill (residual) | $40,000 | 15-year straight-line amortization |
Every Class VI and VII line amortizes at the same rate: $178,000 ÷ 15 = about $11,867 a year, or roughly $989 a month, regardless of how you split the $178,000 among those four lines. The only place the split actually changes your near-term deduction is Class V, since that $2,000 in equipment depreciates on a much faster schedule (or gets expensed immediately under Section 179 if you qualify).
Getting This Into Your Books From Day One
If you're running your acquisition's books in a plain-text ledger, this maps cleanly to a handful of accounts you set up at close and touch once a month:
2026-07-18 * "Micro-SaaS acquisition - asset purchase"
Assets:Equipment:Laptop 2,000.00 USD
Assets:Intangibles:CustomerList 60,000.00 USD
Assets:Intangibles:SourceCode 70,000.00 USD
Assets:Intangibles:NonCompete 8,000.00 USD
Assets:Intangibles:Goodwill 40,000.00 USD
Assets:Checking -180,000.00 USD
2026-08-01 * "Monthly Section 197 amortization"
Expenses:Amortization:Intangibles 988.89 USD
Assets:Intangibles:CustomerList -333.33 USD
Assets:Intangibles:SourceCode -388.89 USD
Assets:Intangibles:NonCompete -44.44 USD
Assets:Intangibles:Goodwill -222.22 USDSeparating the code, customer list, non-compete, and goodwill into their own accounts — even though they amortize identically — matters for two reasons beyond the tax return. First, if you later sell the business, you'll need to know the remaining basis in each bucket to calculate gain or loss accurately. Second, if the deal ever gets IRS scrutiny, having the allocation documented at the transaction level (not just as a lump "intangibles" line) backs up whatever you filed on Form 8594.
Getting the Allocation Documented at Close, Not After
The single biggest mistake indie buyers make on these deals isn't the tax rate — it's leaving the allocation undecided until tax season, months after the wire transfer already cleared. By then, you and the seller are filing separately, possibly with different accountants who never talked to each other, and the numbers rarely line up. Bake a specific allocation schedule into the asset purchase agreement itself, agree on it with the seller before signing, and keep a clean paper trail of how you valued each piece — an appraisal, a subscriber-count-times-LTV calculation for the customer list, a market rate for the non-compete. That schedule becomes both parties' Form 8594 and the amortization schedule sitting in your books for the next 15 years.
Keep the Acquisition's Books Separate From Day One
A micro-SaaS purchase brings its own chart of accounts before your first customer even renews — intangible asset accounts, an amortization schedule, and a purchase price allocation that has to survive an audit five years from now. Beancount.io gives you plain-text accounting that keeps every one of those allocations version-controlled and auditable from the day you sign the asset purchase agreement, with no proprietary format locking up your acquisition's financial history. Get started for free and set the books up right before your first monthly close.