Question: Three years ago, Ralph purchased a small business that he operates as a sole proprietorship. As part of the purchase, Ralph bought a franchise and a patent. He has been amortizing both §197 intangibles over 180 months. Ralph still holds the franchise, but recently sold the patent at a loss. Can he take this loss as a tax deduction?
Answer: No. Ralph cannot currently deduct the loss on the sale of the patent. No loss is recognized on the disposition of an amortizable §197 intangible asset that was acquired in a transaction with other amortizable §197 intangible assets until all the intangible assets purchased in the transaction are disposed of or become worthless. After selling the patent, Ralph will instead add the remaining basis of the patent to the remaining basis of the franchise and will continue amortization over the period remaining on the retained franchise.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.