Goodwill amortization

Definition

Writing off acquired goodwill and similar intangibles over fifteen years.

Why It Matters

Section 197 of the tax code puts one clock on almost every intangible a buyer acquires, and it runs longer than most first-time buyers expect. The deduction is the adjusted basis spread evenly over fifteen years, beginning in the month the intangible was acquired, and the statute bars any other depreciation or amortization on the same asset. What lands on that clock is broad: goodwill, going concern value, the workforce in place, customer lists, books and records, a license or permit granted by a government body, franchises and trade names. A covenant not to compete is on it too whenever it is entered into in connection with buying the business, so a three-year covenant still writes off over fifteen. That is why allocating price to a covenant buys a buyer no speed at all, and why the argument worth having is about the equipment classes.

In numbers: On a $4M asset deal allocating $2.4M to goodwill, the deduction is $160,000 a year for fifteen years, and moving $200k of that into a covenant not to compete changes nothing about the timing.