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Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset). What is Bethany's amortization deduction for the current year?

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jepessoa

Answer:

The answer is: $1,388.89 (or you can round up to $1,389)

Explanation:

According to the IRS:

"You must generally amortize over 15 years the capitalized costs of “section 197 intangibles” you acquired after August 10, 1993. 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."

So Bethany has to amortize her intangible §197 asset in 180 months. She will start to do it in March, since the full month amortization applies.

We have to calculate the amortization for 10 months:

= ($25,000 / 180 ) x 10 = $1,388.89 (or you can round up to $1,389)

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