Mortgage Calculator Amortization Schedule

For purposes of the mortgage calculator amortization schedule rules, a related person is determined under Section 267(b) or businesses under common control under Section 41. If the relationship between the parties is between 20 and 50 percent, the anti-churning rules may be avoided, if the seller of the Section 197 asset agrees to recognize the gain on the sale and to pay tax on that gain at the highest applicable rate. Also included in the anti-churning provisions of Section 197 is an anti-abuse provision. The anti-abuse provision applies to intangibles acquired in a transaction having a principle purpose of avoiding the anti-churning rules. The anti-churning provisions apply only to intangible assets that were not amortizable under prior law. To the extent that the transferred asset was amortizable under prior law, the sale or other transactions with related parties after Aug. 10, 2003, will create new Section 197 intangibles, which are amortizable over 15 years.

Gain on Sales of Intangibles An amortizable Section 197 intangible asset must be treated as property, which is subject to the allowance for depreciation provided in Section 197. Thus, an amortizable intangible must not be treated as a capital asset for purposes of Section 1221. Based on the theory that Section 197 intangibles must be treated as depreciable property, upon the sale or other taxable disposition of Section 197 intangibles these assets must be treated as subject to recapture of depreciation under Section 1245. In addition, Section 1239, relating to the gain from sale of depreciable property between certain related taxpayers, must be applied to the gain recognized on the sale of a Section 197 intangible, directly or indirectly, between related persons. To the extent that the gain recognized on the sale or disposition of a Section 197 intangible exceeds the 1245 recapture, if Section 1239 does not apply, the remainder of the gain is eligible for 1231 treatment.

Tax Planning Opportunities One of the purposes of this new tax provision is to simplify the tax treatment. However, this provision has not simplified the tax law to the extent that appraisals of the various assets acquired in the acquisition of a business are still necessary. An allocation between tangible and intangible assets is still required by Section 1060. Prior to the enactment of Section 197, taxpayers desired to allocate as much of the purchase price to those assets that were depreciable, whether tangible or intangible, rather than to the non-depreciable assets such as land or goodwill.

After enactment of Section 197, the scope of depreciable assets has been enlarged substantially. Still, taxpayers will benefit from allocating more of the purchase price to depreciable rather than non-depreciable assets. In addition, taxpayers will benefit more if a greater portion of the purchase price is allocated to shorter life assets, such as machinery and equipment with a seven-year recovery period, rather than intangibles with a 15-year recovery period.