How Long Is Goodwill Amortized for Tax Purposes: 15 Years

Purchased goodwill is amortized over 15 years for tax purposes — 180 months, straight-line, with the same monthly deduction every month until the schedule runs out. The rule sits in Internal Revenue Code Section 197 and applies whether the goodwill would realistically hold its value for two years or fifty. You cannot shorten the period because the asset lost value faster, and you cannot stretch it out either. If you are asking how long goodwill is amortized for tax purposes, the answer is fixed at 15 years for every buyer, every industry, every deal that qualifies.

The 15-Year Rule and When the Clock Starts

The 180-month amortization period begins in the month you acquire the intangible or the month you begin operating the trade or business, whichever comes later.¹ You get a full month of amortization for the month of acquisition regardless of the closing date. Close on October 28 and your clock starts October 1.

The last month works the opposite way. You do not get an amortization deduction for the month you dispose of the intangible.¹

Goodwill is not the only intangible caught by this rule. Section 197 also sweeps in going concern value, covenants not to compete, customer lists and databases, workforce in place, trademarks, trade names, licenses, permits, patents, and copyrights acquired as part of a business purchase.² Every one of them uses the same 15-year straight-line schedule. A five-year noncompete? Fifteen years. A patent with eight years of legal life left? Fifteen years. The uniformity is the point.

Calculating the Deduction

Divide the cost allocated to goodwill by 180. That gives you your monthly amortization. Multiply by 12 for a full year, or by the number of eligible months for a partial first or last year.

Say you acquire a business on March 15 and $900,000 of the purchase price is allocated to goodwill. Monthly amortization is $5,000. In year one, you claim 10 months (March through December) for a $50,000 deduction. Each full year after that, you deduct $60,000. The final year picks up the remaining months short of the disposition month.

The number you plug into that formula comes from the residual method required by Section 1060. The total purchase price is allocated first to cash, then to securities, receivables, inventory, and all other tangible and intangible assets at fair market value. What remains at the end is goodwill and going concern value.³ Buyer and seller can agree to the allocation in writing, and that written agreement binds both sides unless the IRS finds it inappropriate.

Self-Created Goodwill Is Not Amortizable

The 15-year deduction is only available for goodwill you purchased. Goodwill you built yourself — through years of customer relationships, marketing, and reputation — cannot be amortized under Section 197. The statute expressly excludes intangibles created by the taxpayer.²

One narrow exception exists: an intangible created as part of a transaction involving the purchase of a trade or business can qualify. In practice, that covers a noncompete signed in connection with an acquisition, not goodwill developed over time in the ordinary course of running a business.

Deal Structure Determines Whether You Can Amortize at All

Whether you get to amortize goodwill depends on how you structured the acquisition. In an asset purchase, the buyer takes a basis in each acquired asset equal to the allocated purchase price, and goodwill is amortizable from day one.

A stock purchase does not work the same way. When you buy shares of a corporation, the corporation’s inside basis in its assets does not change. If the company’s goodwill was self-created, its basis is zero, and it stays zero after the sale. The buyer has basis in the stock, not in the underlying goodwill, so no amortization is available.

The workaround is a joint Section 338(h)(10) election. That election recharacterizes the stock purchase as a hypothetical asset sale, stepping up the basis in all assets, including goodwill, and starting a fresh 15-year clock. The target company recognizes gain on the deemed sale, so the election only helps when the value of 15 years of amortization exceeds the immediate tax cost.

Where To Report It

Annual amortization is claimed on Part VI of IRS Form 4562, Depreciation and Amortization, filed with your income tax return (Form 1040, 1120, 1065, or whichever entity form applies).⁴ You report the date placed in service, the cost basis, and 180 months as the amortization period.⁵

For the year of the acquisition, both the buyer and the seller must also file Form 8594, the Asset Acquisition Statement. It reports how the total purchase price was allocated among the asset classes, including the amount assigned to goodwill and going concern value, and the two sides’ allocations must match.⁶ If earnout payments, purchase price adjustments, or resolved contingencies change the allocated amounts in a later year, an amended Form 8594 covering only the changed portion is filed for that year.

What Happens When You Sell or Dispose of Goodwill

You Cannot Write Off a Loss on a Single Intangible

If you dispose of one Section 197 intangible from an acquisition but still hold others from the same deal, you cannot recognize a loss on the disposed asset. Its remaining basis is added to the basis of the retained intangibles and amortized over their remaining periods.²

Picture this: you allocated $200,000 to a customer list and $500,000 to goodwill from the same deal. The customer list is worthless after three years. You cannot claim a loss for its remaining basis, because you still hold the goodwill. That leftover basis rolls into the goodwill, and your monthly amortization goes up. You only recognize the full loss once every Section 197 intangible from that original acquisition is gone.

Gains Are Partly Ordinary Income

Section 197 intangibles are treated as Section 1245 property for tax purposes. When you sell goodwill at a gain, the portion of the gain equal to prior amortization deductions is recaptured as ordinary income.⁷ Gain above that amount is Section 1231 gain, which can receive capital gains treatment depending on your total Section 1231 results for the year.¹ When multiple Section 197 intangibles are disposed of together, the recapture calculation combines them into a single asset.⁵

Related-Party Purchases Get Blocked

Section 197 includes anti-churning rules that prevent related parties from creating amortization deductions by shuffling goodwill between themselves. The rules deny amortization when the goodwill was held or used by the taxpayer or a related person between July 25, 1991, and the statute’s 1993 enactment date, and the transfer does not involve a genuine change in the user of the asset. For this purpose, “related person” uses a 20-percent ownership threshold rather than the usual 50 percent, and family relationships including spouses, children, and ancestors count.² When these rules apply, the goodwill is permanently non-amortizable in the buyer’s hands unless the seller elects to recognize gain at the highest applicable rate, and even then the buyer’s amortizable amount is capped.

1
eCFR. 26 CFR 1.197-2 – Amortization of Goodwill and Certain Other Intangibles
2
Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles
3
Office of the Law Revision Counsel. 26 USC 1060 – Special Allocation Rules for Certain Asset Acquisitions
4
Internal Revenue Service. About Form 4562 – Depreciation and Amortization
5
Internal Revenue Service. Instructions for Form 4562
6
Internal Revenue Service. Instructions for Form 8594
7
Internal Revenue Service. Publication 544 – Sales and Other Dispositions of Assets