Question 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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using the legal life of the patent (e.g., 17 or 20 years) instead of the statutory 15 years for Section 197 assets.

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?

How to approach this question

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