Tax Treatment: Some Patent Expenses May Be Capitalized and Amortized.

Section 1235 of the IRS Code provides for capital gain treatment of a patent.  The key criteria to qualify for capital gains treatment is to be a “holder”.

Generally a holder may be the inventor or one who bought from the inventor or one who obtains an interest in the technology before it is reduced to practice.  For example, investment partners and investment co-owners who contribute capital can qualify as holders so long as the contribution is made before reduction to practice.

A patent can have its rights divided by separate licenses, e.g. by geography, type of product, time duration, and the like.  An agreement for the sale of a patent, which is not intended to be a license, must involve the sale of substantially all of the rights in the patent, otherwise, the monies received will be treated as ordinary income.