Amortization is a cost-recovery method primarily used to depreciate the cost of intangible assets. Section 197 intangibles are amortized over a 15-year period regardless of the actual useful life.
Section 197 Intangibles:
- Any customer-based intangible (customer base, circulation base, insurance in force, etc.);
- Any license, permit or other right granted by a governmental authority;
- Franchise, trademarks and trade names;
- Business patent, copyright, design, process or formula; and
- Cost to acquire customer lists, subscription lists and other operating systems.
Not-Section 197 Intangibles:
- Certain computer software;
- Land interests;
- Interests in a corporation, partnership, trust or estate;
- Sports franchises;
- Interests under existing leases of tangible property; and
- Certain financial contracts.
The allowable amortization amount is cost, the 15-year period starts with the month the intangible was acquired and it is reported on Form 4562.
If a Section 197 intangible is disposed of at a loss (and at the same time retains other Section 197 property acquired in the same transaction), the loss will be disallowed. The loss may, however, be added to the cost basis of the retained Section 197 intangibles.
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