Are Copyrights Amortized? Cost Basis, Recovery Period, and Form 4562

Yes, copyrights are amortized for federal income tax purposes, but the recovery period and method depend on how you acquired the asset. A copyright bought as part of a business acquisition is amortized on a straight-line basis over 15 years under Section 197 of the Internal Revenue Code. A copyright you purchased on its own, or one you created yourself, falls under Section 167 and is generally written off over its actual useful life, which is often much shorter. Sorting the copyright into the right bucket is the first step, because the deduction amount depends entirely on which set of rules applies.

Which Rules Apply Depends on How You Got the Copyright

The tax code splits copyrights into three categories based on acquisition: purchased with a trade or business, purchased separately, or self-created. Each category sends you to a different code section, a different recovery period, and a different line on Form 4562. The distinctions are rigid, and misclassifying the asset can trigger an IRS adjustment.

Copyrights Bought as Part of a Business

When you acquire a copyright as part of buying a trade or business (or a substantial portion of one), the copyright is a Section 197 intangible. You amortize the cost on a straight-line basis over exactly 15 years, starting in the month you acquire the asset and begin using it in your business.¹

The 15-year period is mandatory. It does not matter whether the copyright’s real economic value will last two years or fifty. The same 15-year schedule applies to the other Section 197 intangibles you likely picked up in the same deal: goodwill, going concern value, customer lists, trademarks, and patents.

Copyrights Purchased Separately

Buying a copyright on its own, outside a business acquisition, puts you in a different regime. Section 197 explicitly excludes any interest in a patent or copyright that is “not acquired in a transaction (or series of related transactions) involving the acquisition of assets constituting a trade or business or substantial portion thereof.”¹ Interests in films, sound recordings, video tapes, and books acquired separately are carved out on the same terms.

These copyrights are amortized under Section 167(f)(2), with the method spelled out in Treasury Regulation 1.167(a)-14. You have two options: amortize the cost ratably over the copyright’s remaining useful life, or use the income forecast method under Section 167(g). The income forecast method is common in entertainment, where a film or music catalog earns most of its revenue in the first few years and then tapers off.²

A separate rule covers copyrights bought on a pay-per-use or revenue-share basis. If the purchase price is payable at least annually as a fixed amount per use, or a fixed percentage of the revenue from the copyright, your deduction for the year simply equals the amount you paid that year. No useful-life estimate is needed.²

Copyrights You Created Yourself

Section 197 does not apply to intangibles you created. The statute carves out any Section 197 intangible “created by the taxpayer,” except for goodwill, going concern value, or a covenant not to compete.¹ Self-created copyrights are amortized under Section 167 over their estimated useful economic life.

Estimating that life requires judgment. A copyright’s legal duration is either the author’s life plus 70 years for individually authored works, or 95 years from publication or 120 years from creation (whichever is shorter) for works made for hire.³⁴ The economic life is almost always much shorter. A textbook edition may be commercially relevant for five years. A software manual might be obsolete in three. You can use a recovery period shorter than the legal life, provided the estimate is reasonable given the content and industry norms. If the copyright becomes worthless before the amortization period ends, you can deduct the remaining adjusted basis in the year it loses value.

One important limitation: a self-created copyright only has an amortizable basis if you capitalized costs during its creation. If you already deducted the development costs as current expenses (wages, materials, contractor fees), the copyright’s basis is zero and there is nothing left to amortize.

For domestic research and experimental work performed in tax years beginning after December 31, 2024, this problem is now baked in. The One Big Beautiful Bill Act, signed in 2025, created Section 174A, which permanently allows full expensing of domestic research and experimental expenditures, including software development. Spend $200,000 developing a software product in 2026 and you deduct the entire amount that year. The resulting copyright has a zero tax basis, so there is nothing to amortize going forward. Foreign research expenses are still capitalized and amortized over 15 years under Section 174. Costs capitalized under the old rules during 2022 through 2024 can be either continued on the original five-year schedule, deducted in full in the first tax year beginning after December 31, 2024, or spread ratably over two tax years.

Licensing Is Not Amortization

Not every payment for the right to use copyrighted material creates an amortizable asset. If you license a copyright rather than buy it, the licensing fees are generally deductible as ordinary business expenses in the year you pay them, and no amortization schedule is involved.

The line turns on what rights actually changed hands. Buying means acquiring ownership: the right to exclude others, sublicense, and resell. Licensing means permission to use the work under stated conditions while the original owner keeps the property. If a “license” effectively transfers all substantial rights with no meaningful reversion, the IRS can recharacterize it as a sale, turning what you thought was a current deduction into a capitalized asset.

How to Calculate the Deduction

Once you know which section applies, the math is straightforward. You need two figures: the cost basis of the copyright and the recovery period.

Cost Basis

For a purchased copyright, the basis is the total capitalized acquisition cost: purchase price plus related items like legal fees for the transfer agreement and due-diligence costs. For a self-created copyright, the basis includes capitalized creation costs such as registration fees, direct labor, and materials, but excludes anything already deducted elsewhere on your return.

Recovery Period

The recovery period tracks the bucket:

Acquired with a business (Section 197): fixed at 15 years (180 months), straight-line only, starting the later of the month acquired or the month first used in the business.⁵
Purchased separately (Section 167): the copyright’s remaining useful life, amortized ratably, or the income forecast method for revenue that declines over time. For copyrights with annual contingent payments, the deduction equals the amount paid that year.²
Self-created (Section 167): the estimated useful economic life, straight-line. The income forecast method is also available for certain creative works.

The first-year deduction is prorated. For Section 197 intangibles, divide the annual amount by 12 and multiply by the number of months in service during the year. Section 167 assets prorate the same way.

Where to Report It on Form 4562

All copyright amortization goes on IRS Form 4562, but the line depends on the type:

Section 197 intangibles (copyrights acquired with a business) go in Part VI. You list the asset description, date acquired, amortizable amount, the code section (197), the 15-year period, and the current-year deduction.⁵
Separately purchased or self-created copyrights are reported on Line 42 under “intangible property, other than section 197 intangibles,” using the applicable useful life or the income forecast method.⁵

File Form 4562 with your income tax return for the year you first place the copyright in service and for every year you claim an amortization deduction afterward. If you use the income forecast method for a film or similar property, actual revenue that deviates significantly from your original forecast can require an amended return in later years.

What Happens When You Sell or the Copyright Becomes Worthless

Amortization reduces your tax basis each year. When you eventually sell, abandon, or otherwise dispose of the copyright, the consequences depend on the type of disposition and whether the asset was part of a business acquisition.

Recapture of Prior Amortization

Sell a copyright for more than its adjusted basis and part of the gain is treated as ordinary income rather than capital gain. Gain is ordinary income up to the total amortization you previously claimed, under the Section 1245 recapture rule that applies to all depreciable and amortizable property, including Section 197 intangibles.⁶ Any gain above the recapture amount is capital gain.

When you sell several Section 197 intangibles from the same acquisition in one transaction, the IRS treats them as a single combined asset for recapture. The only exception is for individual intangibles whose adjusted basis exceeds fair market value at the time of sale.⁵

Loss Disallowance for Business-Acquisition Copyrights

Section 197 carries a trap on the downside. If you dispose of one Section 197 intangible at a loss but keep other intangibles from the same acquisition, you cannot deduct the loss. The disallowed loss is added to the basis of the intangibles you still hold, and you recover it only through continued amortization or when you eventually dispose of the rest.⁷

This rule catches business buyers off guard. You might allocate part of a purchase price to a copyright that quickly becomes worthless, expecting to write off the remaining basis. If you still hold goodwill, a customer list, or any other Section 197 intangible from the same deal, the loss is deferred.

Abandonment and Worthlessness

If a copyright becomes genuinely worthless, you can deduct the remaining adjusted basis in the year it loses all value. For copyrights outside Section 197, you need to show you owned the property, intended to abandon it, and took affirmative steps to do so, such as formally relinquishing your rights. Documentation of the decision and the date matters, because the IRS can challenge whether and when the abandonment happened. For Section 197 intangibles, the loss disallowance rule described above still applies if related intangibles are retained.

1
Office of the Law Revision Counsel. 26 US Code 197 – Amortization of Goodwill and Certain Other Intangibles
2
eCFR. 26 CFR 1.167(a)-14 – Treatment of Certain Intangible Property Excluded from Section 197
3
Office of the Law Revision Counsel. 17 US Code 302 – Duration of Copyright: Works Created on or After January 1, 1978
4
U.S. Copyright Office. Circular 30 – Works Made for Hire
5
Internal Revenue Service. Instructions for Form 4562 (2025)
6
Office of the Law Revision Counsel. 26 US Code 1245 – Gain From Dispositions of Certain Depreciable Property
7
eCFR. 26 CFR 1.197-2 – Amortization of Goodwill and Certain Other Intangibles