Derek purchases a small business from Art on August 30, 2022. He paid the following amounts for the business: 

Line Item Description	Amount
Fixed assets	$170,000
Goodwill	50,000
Covenant not to compete	20,000
Total	$240,000

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a. How much of the $240,000 purchase price is for Section 197 intangible assets? 

 

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The current tax guidance provides for two main categories of intangibles: (1) Section 197 intangibles and (2) non-Section 197 intangibles. Section 197 intangibles are those acquired by a taxpayer as part of the acquisition of a trade or business. Amortization is a cost recovery method similar to depreciation in that it spreads the cost recovery of certain intangibles over a fixed period of years.

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b.What amount can Derek deduct on his 2022 tax return as Section 197 intangible amortization?