ExpertHard1 markMultiple Choice
CPA · Question 21 · Area III: Property Transactions
A company acquired a patent for $150,000 as part of the purchase of a trade or business on August 1 of Year 1. What is the amortization deduction for Year 1?
A company acquired a patent for $150,000 as part of the purchase of a trade or business on August 1 of Year 1. What is the amortization deduction for Year 1?
Answer options:
A.
$10,000
B.
$5,000
C.
$4,167
D.
$8,333
How to approach this question
1. Section 197 intangibles (acquired in business purchase) are amortized over 15 years straight-line. 2. Full month convention applies. 3. $150k / 15 = $10k/yr. 4. 5 months (Aug-Dec) = $10k * 5/12.
Full Answer
C.$4,167✓ Correct
IRC §197 intangibles are amortized ratably over a 15-year period (180 months) beginning with the month of acquisition. $150,000 / 180 months = $833.33 per month. August through December is 5 months. $833.33 * 5 = $4,167.
Common mistakes
Using the legal life of the patent (e.g., 17 or 20 years) instead of the statutory 15 years for Section 197 assets.
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