Yes, personal goodwill can be sold as a separate, personal asset in a business acquisition, allowing the individual owner to receive payments taxed at lower long-term capital gains rates rather than ordinary income rates. It represents the value created by an owner's reputation, skills, and relationships, distinct from the business's corporate goodwill.
The Personal Goodwill Advantage
For certain assets, this increased tax basis may be depreciated or amortized, providing tax benefits to the buyer. Acquired goodwill is one such asset: Its tax basis may be amortized over 15 years.
Justifying personal goodwill requires comprehensive documentation showing individual ownership of business relationships, reputation, and revenue-generating capabilities outside the corporate structure.
One common approach to determining the value of personal goodwill is to measure the portion of the value of an entity's profits or cash flow which is attributable to skills, experience and relationships of a particular employee.
If personal goodwill exists, the seller may report it directly on Form 8949, Sales and Other Dispositions of Capital Assets, which flows to Schedule D (Form 1040), Capital Gains and Losses.
Goodwill tax treatment
If goodwill is held for less than a year, gains are taxed as short-term capital gains at ordinary income tax rates (up to 37%). If the stock is held for more than a year, gains on the entire sale, including goodwill, are taxed at long-term capital gains rates (0%, 15%, or 20%).
If you made a profit or gain on the sale of a personal item, your profit is taxable. The profit is the difference between the amount you received for selling the item and the amount you originally paid for the item.
Goodwill is an intangible asset of the value of a business, such as a location or reputation. Personal goodwill attaches to an individual rather than to the business while business goodwill signifies a business' intangible assets, such as patents or a company's brand.
If Company B purchases Company A for $250,000, the amount of economic goodwill “created” would be the purchase price minus the fair market value of net assets: $250,000 – $209,000 = $41,000.
There are two distinct types of goodwill: purchased, and inherent.
If the regular customers follow the chef to the new restaurant, that's an example of personal goodwill. Once the chef has gone, the restaurant has lost that intangible asset (the personal goodwill tied to the chef) that brought in business and made money.
There are several methods which can be implemented for valuation of goodwill which is as follows:
In most cases, when a seller has goodwill, it's taxed at long-term capital gains rates. But if the seller owned the business for less than a year, the goodwill could be taxed at ordinary income tax rates.
According to the Internal Revenue Service (IRS), a taxpayer can deduct the fair market value of clothing, household goods, used furniture, shoes, books and so forth. Fair market value is the price a willing buyer would pay for them.
There are several factors affecting the value of goodwill of a firm. These may include profit trends, firm location, nature of business, required capital, and owner's reputation. Goodwill enhances the value of the business in the long run. Goodwill could be paid for or inherited.
A sale of personal goodwill, if respected by the IRS, creates long-term capital gain to the shareholder, taxable at up to 23.8% (maximum capital gain rate of 20%, plus the 3.8% net investment income tax) rather than ordinary income to the target corporation, taxable at up to 35% plus an additional tax of up to 23.8% on ...
Personal goodwill purchased from an individual seller can typically be amortized over 15 years for tax purposes, creating a future deduction that lowers taxable income.
Personal goodwill often represents significant business value and acquiring it separately yields tax benefits. Amounts paid for goodwill, whether corporate or personal, are treated as Section 197 intangibles, which are amortizable over 15 years.
The federal self-employment tax is 15.3%, so you could save money if your income from an activity or pastime qualifies as hobby income. And if your activity generates less than $400 in 2025, you don't need to pay self-employment taxes, even if your income doesn't qualify as hobby income.