Description of costs.
Describe the costs you are amortizing. You can amortize the following.
Geological and geophysical expenditures (section 167(h)). You must amortize geological and geophysical expenses paid or incurred in connection with the exploration or development of oil and gas within the United States ratably over a 24-month period. For a major integrated oil company (as defined in section 167(h)(5)), the costs paid or incurred after December 19, 2007, must be amortized ratably over a 7-year period (a 5-year period for costs paid or incurred after May 17, 2006, and before December 20, 2007), beginning on the mid-point of the tax year in which the expenses were paid or incurred.
Pollution control facilities (section 169). You can elect to amortize the cost of a certified pollution control facility over a 60-month period (84 months for certain atmospheric pollution control facilities placed in service after April 11, 2005). See section 169 and the related regulations for details and
information required in making the election. See Pub. 535 for more information.
You can deduct a special depreciation allowance on a certified pollution control facility that is qualified property. However, you must reduce the amount on which you figure your amortization deduction by any special depreciation allowance allowed or allowable, whichever is greater. Also, a corporation must reduce its amortizable basis of a pollution control facility by 20% before figuring the amortization deduction.
Bond premium (section 171). For individuals reporting amortization of bond premium for taxable bonds acquired before October 23, 1986, do
not report the deduction here. See the instructions for Schedule A (Form 1040), line 28. For taxpayers (other than corporations) claiming a deduction for amortization of bond premium for taxable bonds acquired after October 22, 1986, but before January 1, 1988, the deduction is treated as interest expense and is subject to the investment interest limitations. Use Form 4952, Investment Interest Expense Deduction, to compute the allowable deduction.
For taxable bonds acquired after 1987, you can elect to amortize the bond premium over the life of the bond. See section 171 and Regulations section 1.171-4 for more information. Individuals, also see Pub. 550, Investment Income and Expenses. A bond premium carryforward as of the end of a taxpayer’s final accrual period is treated as a deduction. See Regulations section 1.171-2T. For an individual, do not report the deduction here. See the instructions for Schedule A (Form 1040), line 28.
Research and experimental expenditures (section 174). You can elect to either amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period. If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. For more information, see Pub. 535.
The cost of acquiring a lease (section 178). Amortize these costs over the term of the lease. For more information, see Pub. 535.
Qualified forestation and reforestation costs (section 194). You can elect to deduct a limited amount of qualifying reforestation costs paid or incurred during the tax year for each qualified timber property. You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year.
If you are otherwise required to file Form T (Timber), Forest Activities Schedule, you can make the election to amortize qualifying reforestation costs by completing Part IV of the form. See the instructions for Form T (Timber) for more information.
See Pub. 535 for more information on amortizing reforestation costs. Partnerships and S corporations, also see the instructions for line 44.
Optional write-off of certain tax preferences over the period specified in section 59(e). You can elect to amortize certain tax preference items over an optional period. If you make this election, there is no AMT adjustment for these expenditures. The applicable expenditures and the optional recovery periods are as follows:
Circulation expenditures (section 173) — 3 years,
- Intangible drilling and development costs (section 263(c)) — 60 months, and
- Research and experimental expenditures (section 174(a)), mining exploration and development costs (sections 616(a) and 617(a)) — 10 years.
For information on making the election, see Regulations section 1.59-1. Also see Pub. 535.
Certain section 197 intangibles. The following costs must be amortized over 15 years (180 months) starting with the later of (a) the month the intangibles were acquired or (b) the month the trade or business or activity engaged in for the production of income begins:
- Going concern value;
- Workforce in place;
- Business books and records, operating systems, or any other information base;
- A patent, copyright, formula, process, design, pattern, know-how, format, or similar item;
- A customer-based intangible (e.g., composition of market or market share);
- A supplier-based intangible;
- A license, permit, or other right granted by a governmental unit;
- A covenant not to compete entered into in connection with the acquisition of a business; and
- A franchise, trademark, or trade name (including renewals).
A longer period may apply to section 197 intangibles leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership). See section 197(f)(10).
A section 197 intangible is treated as depreciable property used in your trade or business. When you dispose of a section 197 intangible, any gain on the disposition, up to the amount of allowable amortization, is recaptured as ordinary income. If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, calculate the recapture as if all of the section 197 intangibles were a single asset. This rule does not apply to section 197 intangibles disposed of for which the adjusted basis exceeds the fair market value.
For more details on section 197 intangibles, see Pub. 535.
Start-up and organizational costs. You can elect to amortize the following costs for setting up your business.
Business start-up costs (section 195).
Organizational costs for a corporation (section 248).
Organizational costs for a partnership (section 709).
For business start-up and organizational costs paid or incurred after September 8, 2008, you can elect to deduct a limited amount of start-up or organizational costs for the year that your business begins. You are not required to attach a statement to make this election. Once made, the election is irrevocable. Any cost not deducted currently must be amortized ratably over a 180-month period. The amortization period starts with the month you begin business operations. See Regulations sections 1.195-1 and 1.248-1.
For business start-up and organizational costs paid or incurred after October 22, 2004, and before September 9, 2008, you can elect to deduct a limited amount of start-up and organizational costs for the year that your business begins. If the election is made, you must attach any statement required by Regulations sections 1.195-1(b) and 1.248-1(c), as in effect before September 9, 2008. Any costs not deducted currently can be amortized ratably over a 180-month period, beginning with the month you begin business.
Note. You can apply the provisions of Regulations sections 1.195-1 and
1.248-1 to all expenses paid or incurred after October 22, 2004, provided the period of limitations on assessment has not expired for the year of the election. Otherwise, for business start-up and organizational costs paid or incurred after October 22, 2004, and before September 9, 2008, the provisions under Regulations sections 1.195-1(b) and 1.248-1(c), as in effect before September 9, 2008, will apply.
For business start-up and organizational costs paid or incurred before October 23, 2004, you can elect an amortization period of 60 months or more.
Attach any statements required by the appropriate section and related regulations to Form 4562 by the due date, including extensions, of your return for the year in which the active trade or business begins. If you have both start-up and organizational costs, attach a separate statement for each type of cost. If you timely filed your return without making the election, you can still make the election on an amended return filed within 6 months of the due date, excluding extensions, of the return. Write "Filed pursuant to section 301.9100-2" on the amended return. See Pub. 535 for more details.
Creative property costs. These are costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. You may be able to amortize creative property costs for properties not set for production within 3 years of the first capitalized transaction. These costs are amortized ratably over a 15-year period under the rules of Rev. Proc. 2004-36, 2004-24 I.R.B. 1063.