Don't overlook these!
Updated for 2012
Section 197 intangibles are certain intangible assets acquired after August 10, 1993 (or after July 25, 1991, if chosen) in connection with the acquisition of a business which must be amortized over 15 years from the date of acquisition.
Intangible assets have no physical form; they cannot be touched. For example, goodwill, franchises, and trade names are intangible assets
An amortizable Section 197 intangible is treated as depreciable property; it is not a capital asset. If held for more than one year, it will generally qualify as a Section 1231 asset and be subject to the rules of Section 1231.
Amortization claimed on Section 1231 property is subject to the recapture rules under Section 1245.
Gain on the sale of Section 197 property to certain related persons is subject to ordinary income treatment under Section 1239.
Section 197 intangibles include:
You cannot amortize the cost of self-created intangibles, such as a customer list that you developed over the years for your own business.
However, if you sell your business, and the customer list is part of the sale, part of the total sales price of the business will be allocated to your customer list as a Section 197 intangible on Form 8594, Asset Acquisition Statement.
Section 197 intangibles (except goodwill and going concern value) are Class VII assets on Form 8594.
The amount of the total sales price allocated to a Section 197 asset becomes the buyer's basis in the asset. The buyer is allowed to amortize a Section 197 intangible over 15 years.
Gain or loss on the sale or exchange of amortizable or depreciable intangible property held over 1 year (other than an amount recaptured as ordinary income) is a Section 1231 gain or loss.
Amortization claimed on Section 197 intangibles is subject to the recapture rules under Section 1245. IRC Section 1245 deals with depreciable property.
If you dispose of more than one amortizable Section 197 intangible in a single transaction (or a series of related transactions), all of these intangibles are treated as one Section 1245 property. Section 1245 property is property that is depreciable or amortizable.
However, if adjusted basis of any amortizable Section 197 intangible exceeds its fair market value, this rule does not apply to that particular intangible.
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