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U.S. Intangible Property Depreciation Method

Generally, you can use straight-line method or income forecast method to depreciate certain intangible property.

Straight Line Method

This method lets you deduct the same amount of depreciation each year over the useful life of the property. To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Subtract the salvage value, if any, from the adjusted basis. The balance is the total depreciation you can take over the useful life of the property.

Divide the balance by the number of years in the useful life. This gives you your yearly depreciation deduction. Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use.

For example, you can use the straight-line method over the useful life if you can depreciate the cost of a patent or copyright. The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it.

Income Forecast Method

You can choose to use the income forecast method instead of the straight-line method to depreciate the following depreciable intangibles.

• Motion picture films or videotapes.
• Sound recordings.
• Copyrights.
• Books.
• Patents.

Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th tax year following the tax year the property is placed in service.

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