Problem 7-19 (Algorithmic) Intangibles (LO 7.8)

Derek purchases a small business from Art on September 1, 2017. He paid the following amounts for the business:

Fixed assets	$325,000
Goodwill	65,000
Covenant not to compete	81,250
Total	$471,250

a. How much of the $471,250 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.

b. What amount can Derek deduct on his 2017 tax return as Section 197 intangible amortization?

If required, round the final answer to the nearest dollar. Use months, not days, in your computations.

$