Table of Contents
- Introduction
- Topics - This chapter discusses:
- Useful Items - You may want to see:
- How To Deduct Amortization
- Starting a Business
- Getting a Lease
- Section 197 Intangibles
- Reforestation Costs
- Geological and Geophysical Costs
- Pollution Control Facilities
- Research and Experimental Costs
- Optional Write-off of Certain Tax Preferences
Amortization is a method of recovering (deducting) certain capital costs over a fixed period of time. It is similar to the straight line method of depreciation.
The various amortizable costs covered in this chapter are included in the list below. However, this chapter does not discuss amortization of bond premium. For information on that topic, see chapter 3 of Publication 550, Investment Income and Expenses.
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Deducting amortization
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Amortizing costs of starting a business
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Amortizing costs of getting a lease
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Amortizing costs of section 197 intangibles
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Amortizing reforestation costs
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Amortizing costs of geological and geophysical costs
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Amortizing costs of pollution control facilities
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Amortizing costs of research and experimentation
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Amortizing costs of certain tax preferences
Publication
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544 Sales and Other Dispositions of Assets
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550 Investment Income and Expenses
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946 How To Depreciate Property
Form (and Instructions)
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4562 Depreciation and Amortization
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4626 Alternative Minimum Tax—Corporations
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6251 Alternative Minimum Tax—Individuals
See chapter 12 for information about getting publications and forms.
To deduct amortization that begins during the current tax year, complete Part VI of Form 4562 and attach it to your income tax return.
To report amortization from previous years, in addition to amortization that begins in the current year, list on Form 4562 each item separately. For example, in 2010, you began to amortize a lease. In 2011, you began to amortize a second lease. Report amortization from the new lease on line 42 of your 2011 Form 4562. Report amortization from the 2010 lease on line 43 of your 2011 Form 4562.
If you do not have any new amortizable expenses for the current year, you are not required to complete Form 4562 (unless you are claiming depreciation). Report the current year's deduction for amortization that began in a prior year directly on the “Other deduction” or “Other expense line” of your return.
When you start a business, treat all eligible costs you incur before you begin operating the business as capital expenditures which are part of your basis in the business. Generally, you recover costs for particular assets through depreciation deductions. However, you generally cannot recover other costs until you sell the business or otherwise go out of business. For a discussion on how to treat these costs, see If your attempt to go into business is unsuccessful under Capital Expenses in chapter 1.
For costs paid or incurred after September 8, 2008, you can deduct a limited amount of start-up and organizational costs. The costs that are not deducted currently can be amortized ratably over a 180-month period. The amortization period starts with the month you begin operating your active trade or business. You are not required to attach a statement to make this election. You can choose to forgo this election by affirmatively electing to capitalize your start-up costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins. Once made, the election to either amortize or capitalize start-up costs is irrevocable and applies to all start-up costs that are related to your trade or business. See Regulations sections 1.195-1, 1.248-1, and 1.709-1.
For costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of business start-up and organizational costs in the year your active trade or business begins. Any costs not deducted can be amortized ratably over a 180-month period, beginning with the month you begin business. If the election is made, you must attach any statement required by Regulations sections 1.195-1(b), 1.248-1(c), and 1.709-1(c), as in effect before September 9, 2008.
Note.
You can apply the provisions of Regulations sections 1.195-1, 1.248-1, and 1.709-1 to all business start-up and organizational costs paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Otherwise, the provisions under Regulations sections 1.195-1(b), 1.248-1(c), and 1.709-1(c), as in effect before September 9, 2008, will apply.
For costs paid or incurred before October 23, 2004, you can elect to amortize business start-up and organization costs over an amortization period of 60 months or more. See How To Make the Election , later.
The cost must qualify as one of the following.
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A business start-up cost.
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An organizational cost for a corporation.
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An organizational cost for a partnership.
Start-up costs are amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business. Start-up costs include amounts paid or incurred in connection with an existing activity engaged in for profit; and for the production of income in anticipation of the activity becoming an active trade or business.
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It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business (in the same field as the one you entered into).
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It is a cost you pay or incur before the day your active trade or business begins.
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An analysis or survey of potential markets, products, labor supply, transportation facilities, etc.
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Advertisements for the opening of the business.
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Salaries and wages for employees who are being trained and their instructors.
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Travel and other necessary costs for securing prospective distributors, suppliers, or customers.
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Salaries and fees for executives and consultants, or for similar professional services.
Example.
On June 1st, you hired an accounting firm and a law firm to assist you in the potential purchase of XYZ, Inc. They researched XYZ's industry and analyzed the financial projections of XYZ, Inc. In September, the law firm prepared and submitted a letter of intent to XYZ, Inc. The letter stated that a binding commitment would result only after a purchase agreement was signed. The law firm and accounting firm continued to provide services including a review of XYZ's books and records and the preparation of a purchase agreement. On October 22nd, you signed a purchase agreement with XYZ, Inc.
All amounts paid or incurred to investigate the business before October 22nd are amortizable investigative costs. Amounts paid on or after that date relate to the attempt to purchase the business and therefore must be capitalized.
Amounts paid to organize a corporation are the direct costs of creating the corporation.
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For the creation of the corporation,
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Chargeable to a capital account (see chapter 1),
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Amortized over the life of the corporation if the corporation had a fixed life, and
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Incurred before the end of the first tax year in which the corporation is in business.
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The cost of temporary directors.
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The cost of organizational meetings.
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State incorporation fees.
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The cost of legal services.
The costs to organize a partnership are the direct costs of creating the partnership.
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It is for the creation of the partnership and not for starting or operating the partnership trade or business.
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It is chargeable to a capital account (see chapter 1).
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It could be amortized over the life of the partnership if the partnership had a fixed life.
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It is incurred by the due date of the partnership return (excluding extensions) for the first tax year in which the partnership is in business. However, if the partnership uses the cash method of accounting and pays the cost after the end of its first tax year, see Cash method partnership under How To Amortize, later.
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It is for a type of item normally expected to benefit the partnership throughout its entire life.
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Legal fees for services incident to the organization of the partnership, such as negotiation and preparation of the partnership agreement.
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Accounting fees for services incident to the organization of the partnership.
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Filing fees.
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The cost of acquiring assets for the partnership or transferring assets to the partnership.
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The cost of admitting or removing partners, other than at the time the partnership is first organized.
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The cost of making a contract concerning the operation of the partnership trade or business including a contract between a partner and the partnership.
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The costs for issuing and marketing interests in the partnership such as brokerage, registration, and legal fees and printing costs. These “syndication fees” are capital expenses that cannot be depreciated or amortized.
Deduct start-up and organizational costs in equal amounts over the applicable amortization period (discussed earlier). You can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both are not less than the applicable amortization period. Once you choose an amortization period, you cannot change it.
To figure your deduction, divide your total start-up or organizational costs by the months in the amortization period. The result is the amount you can deduct for each month.
To elect to amortize start-up or organizational costs, you must complete and attach Form 4562 to your return for the first tax year you are in business. You may also be required to attach an accompanying statement (described later) to your return.
For start-up or organizational costs paid or incurred after September 8, 2008, an accompanying statement is not required. Generally, for start-up or organizational costs paid or incurred before September 9, 2008, and after October 22, 2004, unless you choose to apply Regulations sections 1.195-1, 1.248-1, and 1.709-1, you must also attach an accompanying statement to elect to amortize the costs.
If you have both start-up and organizational costs, attach a separate statement (if required) to your return for each type of cost. See Starting a Business , earlier, for more information.
Generally, you must file the return by the due date (including any extensions). However, if you timely filed your return for the year without making the election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). For more information, see the instructions for Part VI of Form 4562.
You can choose to forgo the election to amortize by affirmatively electing to capitalize your start-up or organizational costs on your income tax return filed by the due date (including extensions) for the tax year in which the active trade or business begins.
Note.
The election to either amortize or capitalize start-up or organizational costs is irrevocable and applies to all start-up and organizational costs that are related to the trade or business.
If your business is organized as a corporation or partnership, only the corporation or partnership can elect to amortize its start-up or organizational costs. A shareholder or partner cannot make this election. You, as a shareholder or partner, cannot amortize any costs you incur in setting up your corporation or partnership. Only the corporation or partnership can amortize these costs.
However, you, as an individual, can elect to amortize costs you incur to investigate an interest in an existing partnership. These costs qualify as business start-up costs if you acquire the partnership interest.
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A description of the business to which the start-up costs relate.
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A description of each start-up cost incurred.
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The month your active business began (or was acquired).
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The number of months in your amortization period (which is generally 180 months).
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A description of each cost.
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The amount of each cost.
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The date each cost was incurred.
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The month your corporation or partnership began active business (or acquired the business).
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The number of months in your amortization period (which is generally 180 months).
If you get a lease for business property, you recover the cost by amortizing it over the term of the lease. The term of the lease for amortization purposes generally includes all renewal options (and any other period for which you and the lessor reasonably expect the lease to be renewed). However, renewal periods are not included if 75% or more of the cost of acquiring the lease is for the term of the lease remaining on the acquisition date (not including any period for which you may choose to renew, extend, or continue the lease).
For more information on the costs of getting a lease, see
Cost of Getting a Lease
in
chapter 3.
Generally, you may amortize the capitalized costs of “section 197 intangibles” (defined later) ratably over a 15-year period. You must amortize these costs if you hold the section 197 intangibles in connection with your trade or business or in an activity engaged in for the production of income.
You may not be able to amortize section 197 intangibles acquired in a transaction that did not result in a significant change in ownership or use. See Anti-Churning Rules, later.
Your amortization deduction each year is the applicable part of the intangible's adjusted basis (for purposes of determining gain), figured by amortizing it ratably over 15 years (180 months). The 15-year period begins with the later of:
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The month the intangible is acquired, or
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The month the trade or business or activity engaged in for the production of income begins.
You cannot deduct amortization for the month you dispose of the intangible.
If you pay or incur an amount that increases the basis of an amortizable section 197 intangible after the 15-year period begins, amortize it over the remainder of the 15-year period beginning with the month the basis increase occurs.
You are not allowed any other depreciation or amortization deduction for an amortizable section 197 intangible.
The following assets are section 197 intangibles and must be amortized over 180 months:
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Goodwill;
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Going concern value;
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Workforce in place;
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Business books and records, operating systems, or any other information base, including lists or other information concerning current or prospective customers;
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A patent, copyright, formula, process, design, pattern, know-how, format, or similar item;
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A customer-based intangible;
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A supplier-based intangible;
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Any item similar to items (3) through (7);
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A license, permit, or other right granted by a governmental unit or agency (including issuances and renewals);
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A covenant not to compete entered into in connection with the acquisition of an interest in a trade or business;
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Any franchise, trademark, or trade name; and
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A contract for the use of, or a term interest in, any item in this list.
You cannot amortize any of the intangibles listed in items (1) through (8) that you created rather than acquired unless you created them in acquiring assets that make up a trade or business or a substantial part of a trade or business.
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A customer base.
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A circulation base.
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An undeveloped market or market growth.
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Insurance in force.
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A mortgage servicing contract.
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An investment management contract.
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Any other relationship with customers involving the future provision of goods or services.
The following assets are not section 197 intangibles.
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Any interest in a corporation, partnership, trust, or estate.
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Any interest under an existing futures contract, foreign currency contract, notional principal contract, interest rate swap, or similar financial contract.
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Any interest in land.
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Most computer software. (See Computer software , later.)
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Any of the following assets not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business.
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An interest in a film, sound recording, video tape, book, or similar property.
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A right to receive tangible property or services under a contract or from a governmental agency.
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An interest in a patent or copyright.
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Certain rights that have a fixed duration or amount. (See Rights of fixed duration or amount , later.)
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An interest under either of the following.
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An existing lease or sublease of tangible property.
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A debt that was in existence when the interest was acquired.
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A right to service residential mortgages unless the right is acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business.
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Certain transaction costs incurred by parties to a corporate organization or reorganization in which any part of a gain or loss is not recognized.
Intangible property that is not amortizable under the rules for section 197 intangibles can be depreciated if it meets certain requirements. You generally must use the straight line method over its useful life. For certain intangibles, the depreciation period is specified in the law and regulations. For example, the depreciation period for computer software that is not a section 197 intangible is generally 36 months.
For more information on depreciating intangible property, see Intangible Property under What Method Can You Use To Depreciate Your Property? in chapter 1 of Publication 946.
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Software that meets all the following requirements.
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It is, or has been, readily available for purchase by the general public.
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It is subject to a nonexclusive license.
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It has not been substantially modified. This requirement is considered met if the cost of all modifications is not more than the greater of 25% of the price of the publicly available unmodified software or $2,000.
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Software that is not acquired in connection with the acquisition of a trade or business or a substantial part of a trade or business.
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Has a fixed life of less than 15 years, or
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Is of a fixed amount that, except for the rules for section 197 intangibles, would be recovered under a method similar to the unit-of-production method of cost recovery.
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Goodwill.
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Going concern value.
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A covenant not to compete.
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A franchise, trademark, or trade name.
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A customer-related information base, customer-based intangible, or similar item.
If you are engaged in the trade or business of film production, you may be able to amortize the creative property costs for properties not set for production within 3 years of the first capitalized transaction. You may amortize these costs ratably over a 15-year period beginning on the first day of the second half of the tax year in which you properly write off the costs for financial accounting purposes. If, during the 15-year period, you dispose of the creative property rights, you must continue to amortize the costs over the remainder of the 15-year period.
Creative property costs include costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation.
Amortize these costs using the rules of Revenue Procedure 2004-36. For more information, see Revenue Procedure 2004-36, 2004-24
I.R.B. 1063, available at
www.irs.gov/irb/2004-24_IRB/ar16.html.
A change in the treatment of creative property costs is a change in method of accounting.
Anti-churning rules prevent you from amortizing most section 197 intangibles if the transaction in which you acquired them did not result in a significant change in ownership or use. These rules apply to goodwill and going concern value, and to any other section 197 intangible that is not otherwise depreciable or amortizable.
Under the anti-churning rules, you cannot use 15-year amortization for the intangible if any of the following conditions apply.
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You or a related person (defined later) held or used the intangible at any time from July 25, 1991, through August 10, 1993.
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You acquired the intangible from a person who held it at any time during the period in (1) and, as part of the transaction, the user did not change.
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You granted the right to use the intangible to a person (or a person related to that person) who held or used it at any time during the period in (1). This applies only if the transaction in which you granted the right and the transaction in which you acquired the intangible are part of a series of related transactions. See Related person , later, for more information.
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You acquired the intangible from a decedent and its basis was stepped up to its fair market value.
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The intangible was amortizable as a section 197 intangible by the seller or transferor you acquired it from. This exception does not apply if the transaction in which you acquired the intangible and the transaction in which the seller or transferor acquired it are part of a series of related transactions.
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The gain-recognition exception, discussed later, applies.
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An individual and his or her brothers, sisters, half-brothers, half-sisters, spouse, ancestors (parents, grandparents, etc.), and lineal descendants (children, grandchildren, etc.).
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A corporation and an individual who owns, directly or indirectly, more than 20% of the value of the corporation's outstanding stock.
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Two corporations that are members of the same controlled group as defined in section 1563(a) of the Internal Revenue Code, except that “more than 20%” is substituted for “at least 80%” in that definition and the determination is made without regard to subsections (a)(4) and (e)(3)(C) of section 1563. (For an exception, see section 1.197-2(h)(6)(iv) of the regulations.)
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A trust fiduciary and a corporation if more than 20% of the value of the corporation's outstanding stock is owned, directly or indirectly, by or for the trust or grantor of the trust.
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The grantor and fiduciary, and the fiduciary and beneficiary, of any trust.
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The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts.
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The executor and beneficiary of an estate.
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A tax-exempt educational or charitable organization and a person who directly or indirectly controls the organization (or whose family members control it).
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A corporation and a partnership if the same persons own more than 20% of the value of the outstanding stock of the corporation and more than 20% of the capital or profits interest in the partnership.
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Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 20% of the value of the outstanding stock of each corporation.
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Two partnerships if the same persons own, directly or indirectly, more than 20% of the capital or profits interests in both partnerships.
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A partnership and a person who owns, directly or indirectly, more than 20% of the capital or profits interests in the partnership.
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Two persons who are engaged in trades or businesses under common control (as described in section 41(f)(1) of the Internal Revenue Code).
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In the case of a single transaction, immediately before or immediately after the transaction in which the intangible was acquired.
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In the case of a series of related transactions (or a series of transactions that comprise a qualified stock purchase under section 338(d)(3) of the Internal Revenue Code), immediately before the earliest transaction or immediately after the last transaction.
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That person would not be related to you (as described under Related person , earlier) if the 20% test for ownership of stock and partnership interests were replaced by a 50% test.
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That person chose to recognize gain on the disposition of the intangible and pay income tax on the gain at the highest tax rate. See chapter 2 in Publication 544 for information on making this choice.
If you later discover that you deducted an incorrect amount for amortization for a section 197 intangible in any year, you may be able to make a correction for that year by filing an amended return. See Amended Return , next. If you are not allowed to make the correction on an amended return, you can change your accounting method to claim the correct amortization. See Changing Your Accounting Method , later.
If you deducted an incorrect amount for amortization, you can file an amended return to correct the following.
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A mathematical error made in any year.
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A posting error made in any year.
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An amortization deduction for a section 197 intangible for which you have not adopted a method of accounting.
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3 years from the date you filed your original return for the year in which you did not deduct the correct amount. (A return filed early is considered filed on the due date.)
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2 years from the time you paid your tax for that year.
Generally, you must get IRS approval to change your method of accounting. File Form 3115, Application for Change in Accounting Method, to request a change to a permissible method of accounting for amortization.
The following are examples of a change in method of accounting for amortization.
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A change in the amortization method, period of recovery, or convention of an amortizable asset.
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A change in the accounting for amortizable assets from a single asset account to a multiple asset account (pooling), or vice versa.
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A change in the accounting for amortizable assets from one type of multiple asset account to a different type of multiple asset account.
Changes in amortization that are not a change in method of accounting include the following:
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A change in computing amortization in the tax year in which your use of the asset changes.
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An adjustment in the useful life of an amortizable asset.
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Generally, the making of a late amortization election or the revocation of a timely valid amortization election.
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Any change in the placed-in-service date of an amortizable asset.
See Regulations section 1.446-1(e)(2)(ii)(a) for more information and examples.
For more information, see Revenue Procedure 2006-12, as modified by Revenue Procedure 2006-37, and Revenue Procedure 2008-52,
as amplified, clarified, and modified by Revenue Procedure 2009-39, as clarified and modified by Revenue Procedure 2011-14,
as modified and amplified by Revenue Procedure 2011-22. See Revenue Procedure 2006-12, 2006-3 I.R.B. 310, available at
www.irs.gov/irb/2006-03_IRB/ar14.html.
See Revenue Procedure 2006-37, 2006-38 I.R.B. 499, available at
www.irs.gov/irb/2006-38_IRB/ar10.html.
See Revenue Procedure 2008-52, 2008-36 I.R.B. 587, available at
www.irs.gov/irb/2008-36_IRB/ar09.html.
See Revenue Procedure 2009-39, 2009-38 I.R.B. 371, available at
www.irs.gov/irb/2009-38_IRB/ar08.html.
See Revenue Procedure 2011-14, 2011-4 I.R.B. 330, available at
www.irs.gov/irb/2011-04_IRB/ar08.html.
See Revenue Procedure 2011-22, 2011-18 I.R.B. 737, available at
www.irs.gov/irb/2011-18_IRB/ar08.html.
A section 197 intangible is treated as depreciable property used in your trade or business. If you held the intangible for more than 1 year, any gain on its disposition, up to the amount of allowable amortization, is ordinary income (section 1245 gain). If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, treat all of the section 197 intangibles as if they were a single asset for purposes of determining the amount of gain that is ordinary income. Any remaining gain, or any loss, is a section 1231 gain or loss. If you held the intangible 1 year or less, any gain or loss on its disposition is an ordinary gain or loss. For more information on ordinary or capital gain or loss on business property, see chapter 3 in Publication 544.
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The numerator is the adjusted basis of each remaining intangible on the date of the disposition.
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The denominator is the total adjusted bases of all remaining amortizable section 197 intangibles on the date of the disposition.
Example.
You own a section 197 intangible you have amortized for 4 full years. It has a remaining unamortized basis of $30,000. You exchange the asset plus $10,000 for a like-kind section 197 intangible. The nonrecognition provisions of like-kind exchanges apply. You amortize $30,000 of the $40,000 adjusted basis of the acquired intangible over the 11 years remaining in the original 15-year amortization period for the transferred asset. You amortize the other $10,000 of adjusted basis over a new 15-year period. For more information, see Regulations section 1.197-2(g).
You can elect to deduct a limited amount of reforestation costs paid or incurred during the tax year. See Reforestation Costs in chapter 7. You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year.
The election to amortize reforestation costs incurred by a partnership, S corporation, or estate must be made by the partnership, corporation, or estate. A partner, shareholder, or beneficiary cannot make that election.
A partner's or shareholder's share of amortizable costs is figured under the general rules for allocating items of income, loss, deduction, etc., of a partnership or S corporation. The amortizable costs of an estate are divided between the estate and the income beneficiary based on the income of the estate allocable to each.
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Site preparation.
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Seeds or seedlings.
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Labor.
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Tools.
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Depreciation on equipment used in planting and seeding.
Qualifying costs do not include costs for which the government reimburses you under a cost-sharing program, unless you include the reimbursement in your income.
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It is located in the United States.
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It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of timber products.
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It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation.
Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such as Christmas trees.
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A description of the costs and the dates you incurred them.
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A description of the type of timber being grown and the purpose for which it is grown.
Send the application to:
Internal Revenue Service
Associate Chief Counsel
Passthroughs and Special Industries
CC:PSI:6
1111 Constitution Ave., NW, IR-5300
Washington, DC 20224
You can amortize the cost of geological and geophysical expenses paid or incurred in connection with oil and gas exploration or development within the United States. These costs can be amortized ratably over a 24-month period beginning on the mid-point of the tax year in which the expenses were paid or incurred. For major integrated oil companies (as defined in section 167(h)(5)), these costs must be amortized ratably over a 5-year period for costs paid or incurred after May 17, 2006 (a 7-year period for costs paid or incurred after December 19, 2007).
If you retire or abandon the property during the amortization period, no amortization deduction is allowed in the year of retirement or abandonment.
You can elect to amortize the cost of a certified pollution control facility over 60 months. However, see Atmospheric pollution control facilities for an exception. The cost of a pollution control facility that is not eligible for amortization can be depreciated under the regular rules for depreciation. Also, you can claim a special depreciation allowance on a certified pollution control facility that is qualified property even if you elect to amortize its cost. You must reduce its cost (amortizable basis) by the amount of any special allowance you claim. See chapter 3 of Publication 946.
A certified pollution control facility is a new identifiable treatment facility used in connection with a plant or other property in operation before 1976, to reduce or control water or atmospheric pollution or contamination. The facility must do so by removing, changing, disposing, storing, or preventing the creation or emission of pollutants, contaminants, wastes, or heat. The facility must be certified by state and federal certifying authorities.
The facility must not significantly increase the output or capacity, extend the useful life, or reduce the total operating costs of the plant or other property. Also, it must not significantly change the nature of the manufacturing or production process or facility.
The federal certifying authority will not certify your property to the extent it appears you will recover (over the property's useful life) all or part of its cost from the profit based on its operation (such as through sales of recovered wastes). The federal certifying authority will describe the nature of the potential cost recovery. You must then reduce the amortizable basis of the facility by this potential recovery.
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The facility must be acquired and placed in service after April 11, 2005. If acquired, the original use must begin with you after April 11, 2005.
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The facility must be used in connection with an electric generation plant or other property placed in operation after December 31, 1975, that is primarily coal fired.
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If you construct, reconstruct, or erect the facility, only the basis attributable to the construction, reconstruction, or erection completed after April 11, 2005, qualifies.
You can elect to amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period (see Optional write-off method below).
If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. The amortization period begins the month you first receive an economic benefit from the costs.
For a definition of “research and experimental costs” and information on deducting them as current business expenses, see chapter 7.
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You paid or incurred the costs in your trade or business.
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You are not deducting the costs currently.
You can elect to amortize certain tax preference items over an optional period beginning in the tax year in which you incurred the costs. If you make this election, there is no AMT adjustment. The applicable costs and the optional recovery periods are as follows:
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Circulation costs — 3 years,
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Intangible drilling and development costs — 60 months,
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Mining exploration and development costs — 10 years, and
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Research and experimental costs — 10 years.
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Your name, address, and taxpayer identification number; and
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The type of cost and the specific amount of the cost for which you are making the election.
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