Amortization and Accretion
Amortization is the deduction of capital expenses over a specific period of time and it typically applies to intangible assets such as patents, trademarks, copyrights and franchise licenses. These costs generally fall under the "Section 197 intangible" asset code, which allows them to be amortized (taken as a deduction) over a 15-year period. Because the taxpayer gets a deduction for property depreciation and amortization over the life of the asset, the cost basis must be adjusted downward as well to reflect this.

Accretion is an increase in value by internal growth or acquisitions and mergers. If new property is purchased to increase the productivity, growth or expansion of the business, it would be considered an "addition to the property," which allows the basis of the newly acquired asset to be added to the original cost basis of the original property.
Basis of Property Received by Gift and in Nontaxable Transactions

Related Articles
  1. Investing

    Explaining Amortization In The Balance Sheet

    Amortization occurs when an asset’s value decreases over time, usually over its estimated useful life.
  2. Financial Advisor

    How Does Depreciation Reduce My Tax Bill?

    How the depreciation tax rule can assist real estate investors.
  3. Investing

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  4. Investing

    How Depreciation Works on a Rental Property

    One of the advantages of owning rental real estate is the depreciation tax deduction.
  5. Investing

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  6. Investing

    Premium Bonds: Problems And Opportunities

    Learn all about premium bonds and how you can make them work for you.
  7. Taxes

    Tax Deductions For Rental Property Owners

    The IRS defines a real estate professional as someone who works more than half of her time in the business, and more than 750 hours per year working on her properties.
  8. Taxes

    How Does a Tax-Free Exchange Work?

    In regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
  9. Taxes

    An Overview of Itemized Deductions

    Itemized deductions will mostly stay the same for 2017 tax year (medical deductions improve under the new tax bill). Big changes start in 2018.
  10. Managing Wealth

    What are Intangible Assets?

    Intangible assets represent potential revenue. Take an intangible asset like brand recognition: There is value in people remembering your company and then wanting to buy its products.
Frequently Asked Questions
  1. Do interest rates increase during a recession?

    Learn why interest rates do not rise in a recession; in fact, the opposite happens. Identify the factors that reduce interest ...
  2. What is the difference between deflation and disinflation?

    Learn what deflation and disinflation are, how supply and demand affect price levels, and the difference between deflation ...
  3. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ...
  4. What does CHIPS UID mean?

    Learn what CHIPS UID stands for and how it facilitates the transfer of funds as the back-end of the ACH network for both ...
Trading Center