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Specified intangible assets acquired in connection with a trade or business or income-producing activity generally are amortized for federal tax purposes over 15 years (180 months). The period begins in the later of the month the asset was acquired or the month the related business or activity begins. The rules depend on what the asset is, how it was acquired, and whether an exception applies.
Which assets can qualify under Section 197?
Section 197 applies to specified classes of intangible assets acquired in the relevant business or income-producing context; an asset is not covered simply because it has no physical form. IRS guidance lists categories including:
- Goodwill and going-concern value.
- Workforce in place, business books and records, operating systems, and other information bases.
- Patents, copyrights, formulas, processes, designs, patterns, know-how, formats, and similar items.
- Customer-based and supplier-based intangibles.
- Governmental licenses, permits, and other rights.
- Covenants not to compete entered into in connection with acquiring a business.
- Franchises, trademarks, and trade names.
Publication 544 describes Section 197 intangibles as certain assets acquired after August 10, 1993, or after July 25, 1991, when the specified election is made, and held in connection with a trade or business or an activity entered into for profit. The categories are a starting point, not a substitute for analyzing the transaction and applicable rules. See the IRS 2025 Instructions for Form 4562 and Publication 544 (2025).
How long is the amortization period, and when does it start?
The general recovery period is 15 years, or 180 months. Start counting from the later of the month the intangible was acquired or the month the related trade, business, or income-producing activity begins. For example, if an asset is acquired in March but the related business begins in June, the period starts in June.
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A limited exception can require a longer period for certain Section 197 intangibles leased under agreements entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or specified foreign person or entity. Check the current-year Form 4562 instructions if this could apply.
How do you calculate the deduction for a tax year?
The Form 4562 instructions describe the calculation as the amortizable amount divided by the months in the amortization period, multiplied by the months of that period included in the tax year. For the usual 180-month period, the monthly amount is the amortizable amount divided by 180. The first or final tax year may include fewer than 12 months, depending on the starting month and the asset’s place in the period.
Use the amortizable amount established for the asset and apply the month-based calculation; do not assume every business purchase price is amortizable under Section 197. Asset classification and transaction facts determine whether the rule applies and what amount is subject to it.
Where do you report Section 197 amortization?
Report the deduction on Form 4562, following the instructions for the tax year being filed. Line references and filing directions can change, so use the instructions corresponding to the return year rather than relying on an older form or a generic line number. The IRS provides the current instructions at Instructions for Form 4562.
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What happens if you dispose of a Section 197 intangible?
Gain may be ordinary income
On disposition, gain up to the amount of allowable amortization may be recaptured as ordinary income. If multiple Section 197 intangibles are disposed of in one transaction or related transactions, the IRS instructions generally treat them together for this recapture calculation. The instructions state an exception where adjusted basis exceeds fair market value; consult the applicable instructions for its treatment.
A loss may be deferred when a related intangible is retained
Publication 544 says a loss generally cannot be deducted when a Section 197 intangible is disposed of or becomes worthless if another Section 197 intangible from the same transaction or related series is retained. Instead, basis-adjustment rules apply.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.How do software and created intangibles differ?
Some acquired software follows separate depreciation rules
Software acquired as part of acquiring a business may generally be Section 197 property. Publication 946 describes an exception for software that is readily available to the public, acquired under a nonexclusive license, and not substantially modified. Software meeting the applicable conditions may be depreciable over a separate 36-month useful life. Verify all conditions before using this treatment; it is not a blanket software exception. See IRS Publication 946 (2025).
Certain created intangibles have a separate safe harbor
Publication 946 also describes a separate 15-year safe-harbor rule for certain created intangibles. It excludes, among other things, assets acquired from another person, certain created financial interests, assets with reasonably estimable useful lives, and amounts paid to facilitate specified transactions. This is an adjacent rule, not the general Section 197 treatment for acquired assets.
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What should you check before claiming amortization?
- Classify the asset. Determine whether it falls within a Section 197 category and whether the acquisition and business or income-producing context meet the applicable requirements.
- Establish the relevant months. Identify the acquisition month and the month the related activity began; use the later month as the start of the general period.
- Check for special rules. Consider the longer-period leasing exception, anti-churning restrictions, and separate software or created-intangible rules.
- Calculate and report for the correct year. Apply the amortizable amount and months included in the period, then follow that year’s Form 4562 instructions.
- Review related assets if there is a disposition. Recapture and loss limitations can depend on whether other Section 197 intangibles from the same transaction or related series are sold or retained.
These are federal rules. The IRS publications do not determine the allocation of a particular purchase price, resolve related-party facts, or establish state tax treatment. When classification, allocation, or an exception could materially affect a return, get transaction-specific tax advice.
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