Amortization actually has different meanings depending on what it is being related to. Amortization is chiefly used in loan repayments, such as a mortgage loan, and in sinking funds. In this situation, amortization is the distribution of a single lump-sum cash flow into many smaller cash flow installments, as determined by an amortization schedule. Unlike other repayment models, each repayment installment consists of both principal and interest. Payments are divided into equal amounts for the length of the loan, making it the simplest repayment model. A greater amount of the payment is applied to interest at the beginning of the amortization schedule, while more money is applied to principal at the end. …show more content…
1) The intangible asset must be covered by Section 197. 2) It must be an asset that was purchased and not self-generated.
3) The asset must be connected with the operation of a trade or business or as an investment activity.
There are also a couple of exceptions. If you are just starting a business, the start-up expenditures need to be amortized under Code Section 195. And like everything else that involves the IRS, there are certain factors that need to be present:
1) The expenses must have been for:
- Investigating the creation or acquisition of an active trade or business.
- Creating an active trade or business.
- For any activity engaged in for profit and for the production of income before the day on