Amortization

Amortization accounts for recovery of capital ratably (in equal installments over the useful life of the property).

• An amortizable asset, generally, is property that
  • Is intangible,
  • Is personal property (as opposed to real),
  • Has a determinable useful life, and
  • Is used in a trade or business or for the production of income.
• A deduction is allowed for assets used in a trade or business or for the production of income. The deduction is ratable (straight-line) over the useful life of the asset or, in the case of Sec. 197 intangibles, 15 years.

Intangibles

• Section 197 intangibles acquired (not created) in a trade, business, or income-producing activity are amortized over a 15-year period, beginning with the month in which the intangibles are acquired.
  • Qualified intangibles include the following:
    • Acquired goodwill and going-concern value
    • Intangible assets relating to the work force, information base, patent, copyright, sound recordings, computer software, know-how, customers, suppliers, or similar items
    • Licenses, permits, or other rights granted by governmental units
    • Covenants not to compete
    • Any franchise, trademark, or trade name, including professional sports franchises
  • Qualified intangibles do not include intangibles that result from the taxpayer's own efforts, unless they are in connection with the acquisition of a trade or business.
    • The basis of an intangible is usually the cost to buy or create it.
      • Cost includes all costs of acquisition and expenditures necessary to make the intangible asset ready for its intended use.
      • The basis does not include unsubstantiated expenses for creative effort, only identifiable expenses.
  • The following are excluded from intangible amortization treatment:
    • Interests in corporations, partnerships, trusts, and estates
    • Interests in land
    • Most financial instruments and contracts
    • Leases of intangible personal property
    • Professional sports franchises
  • Loss realized on disposition of a qualified intangible is disallowed if the taxpayer retains other qualified intangibles acquired in the same (set of) transaction(s).
    • The amount disallowed is added to the basis of the intangibles retained.

Start-Up Costs

• Start-up costs of business may be amortized over 180 months, starting with the month when business begins (see the $5,000 first-year deduction under Organizational Expense).
  • Start-up costs are both
    • Paid or incurred in connection with starting or investigating the start or acquisition of an active trade or business and
    • Of a kind that would be allowed as a current deduction if incurred by an existing business in the same field (i.e., not capital and fully deductible in current year).
  • Not included is the purchase price of property to be used in the trade or business, e.g., land, building, and equipment.
  • If the business is not started or acquired, the costs are not deductible unless the person is already engaged in a similar line of business.
  • Examples: market research, product research, accounting and consulting fees, travel to line up suppliers and customers, training employees before opening. Not included: interest, taxes, and research and experimental costs (those have their own rules), and the cost of a logo design, which is a separate intangible.

Organizational Expense

• Organizational expense of a corporation or a partnership is generally capitalized. Amortization over at least 180 months may be elected. If not, it is recoverable only upon dissolution of the entity.
• Up to $5,000 each of start-up expenses and organization costs may be deducted in the first year.
  • If the costs exceed $50,000, the $5,000 is reduced dollar-for-dollar above $50,000.
  • A taxpayer is deemed to have made the election and is not required to attach a separate statement to the return.
• The cost of acquiring assets is included as part of the cost of the assets.

Research and Experimental Costs (Sec. 174A)

• added 2026 Domestic research and experimental expenditures paid or incurred in tax years beginning after December 31, 2024 are deductible in the year incurred. (From 2022 through 2024 they had to be capitalized and amortized over 5 years.)
• added 2026 A taxpayer may instead elect to capitalize domestic R&E and amortize it over not less than 60 months.
• added 2026 Foreign research remains capitalized and amortized over 15 years under Sec. 174.
• added 2026 Catch-up: domestic R&E capitalized for 2022–2024 that is still unamortized may be deducted in the first tax year beginning after 2024, or ratably over that year and the next.
• added 2026 Small business election: a taxpayer meeting the gross receipts test (average annual gross receipts of $31,000,000 or less for 2025) may elect to apply the new rule retroactively to tax years beginning after 2021 by amending those returns.

Construction Period Interest

• Construction period interest must be capitalized and recovered under applicable depreciation rules. Amortization is not permitted.

Lease Costs

• Costs of acquiring a lease are amortized over the lease term. Examples are the purchase price paid to the current holder, commissions, and finders' fees.
  • Renewal options are included in the term if less than 75% of the cost is attributable to the period prior to renewal.
  • Improvements by the lessee are deducted under the MACRS method (according to the type of improvement), without regard to the lease term.

Private reference, not client advice. Original notes written 2022–2023 while studying for the SEE Part 2; figures updated October 2026 (Rev. Proc. 2025-32, Rev. Proc. 2026-15, P.L. 119-21). Verify current-year amounts before relying on them.