amortize

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Amortization

1. A tax deduction for the gradual consumption of the value of an asset, especially an intangible asset. For example, if a company spends $1 million on a patent that expires in 10 years, it amortizes the expense by deducting $100,000 from its taxable income over the course of 10 years. It is often used interchangeably with depreciation, which technically refers to the same thing for tangible assets.

2. The act of repaying a loan in regular payments over a given period of time.

amortize

To write off gradually and systematically a given amount of money within a specific number of time periods. For example, an accountant amortizes the cost of a long-term asset by deducting a portion of that cost against income in each period. Likewise, an investor will usually amortize the premium each year on a bond purchased at a price above its principal.
References in periodicals archive ?
With respect to bonds acquired before October 23, 1986, a taxpayer who elected to amortize takes an annual itemized interest expense deduction.
Under final regulations generally in effect for bonds acquired on or after March 2, 1998, a holder makes the election to amortize by offsetting interest income with bond premium in the holder's timely filed federal income tax return for the first taxable year to which the holder desires the election to apply.
A bondholder making an election to treat all interest on a bond as original issue discount is deemed to have elected to amortize any existing bond premium (see Q 1116).
If a bondholder elects to amortize bond premium and holds a taxable bond acquired before the taxable year for which the election is made, the holder may not amortize amounts that would have been amortized in prior taxable years had an election been in effect for those prior years.
A taxpayer electing to amortize must also reduce his basis in the bond by the amount of premium that is an allowable deduction or that was applied in reduction of interest payments each year.
However, if a bondholder elected to amortize bond premium for the taxable year containing March 2, 1998, or any subsequent taxable year, the final regulations under IRC Section 171 apply to bonds held on or after the first day of the taxable year in which the election is made.
Furthermore, a holder is deemed to have made the election under regulations for the taxable year containing March 2, 1998, if the holder elected to amortize bond premium under IRC Section 171 and that election was effective on March 2, 1998.
If the bond is transferred basis property and the transferor had acquired the bond at a premium, the holder's basis in the bond is the holder's basis for determining loss on the sale or exchange of the bond reduced by any amounts that the transferor could not have amortized (under the basis rules or because of an election to amortize in a subsequent taxable year), except to the extent that the holder's basis already reflects a reduction attributable to the nonamortizable amounts.