Question

Derek purchases a small business from Art on July 1, 2017. He paid the following amounts for the business:

Fixed assets	$220,000
Goodwill	50,000
Covenant not to compete	55,000
Total	$325,000

a. How much of the $325,000 purchase price is for Section 197 intangible assets?
$

b. What amount can Derek deduct on his 2017 tax return as Section 197 intangible amortization?

Use months, not days, in your computations.

$

Answer 1

A)$105000

Explanation = qualified intangible assets as per s197 include goodwill, going concer value, workforce in place, information bases, know how, cusromer based intangibles, convenant not to compete, licence, permits , franchises etc.

B) $3500

S197 intangible assets are amortized over a 15 year period, begining with the month of acquisition

Therefore , amotization per year = 105000/15 = 7000

Amotization oer month = 7000/12 = $583.333

Hence amotization in 2017 will be $3500 ( 583.333× 6 months (from july to december)

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