#Long term capital gain 2017 code#
Section 1221 is the principal code provision that determines what property is treated as a capital asset for income tax purposes. The treatment of the sale of section 197 assets revolves around recent changes to the Code as well as statutory history extending back more than half a century. The TJCA and the current statutory scheme This article explores some of those scenarios. However, there are scenarios under which capital gain treatment is still available for these types of IP. Under the TCJA, section 1221(a)(3) was revised to include a "patent, invention, model or design (whether or not patented), a secret formula or process," thereby excluding that IP from capital gain treatment on sale. The principle behind section 1221(a) is that someone whose occupation is the creation of intellectual property should pay ordinary income tax on its sale, similar to the way an attorney or doctor pays ordinary income tax on fee income. Under section 1221(a)(3), copyrights were, in some cases, denied capital gain status when sold. Introductionīefore the passage of the TCJA, patents generally qualified as capital assets under section 1221 and had an advantageous position relative to some other forms of intellectual property (IP), such as copyrights. The complexity arises both from the intersection of two Code provisions, one of which was amended by the TJCA, as well as from a dearth of IRS guidance on the matter.
When such a company is sold in an asset or deemed asset sale, or when the company sells these patents, the question often arises: Does the sale of the patents generate ordinary income or capital gains?Īlthough the answer to this question was relatively straightforward prior to the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, it is no longer straightforward. Companies in the life science and biotechnology industries often own patents or patentable material with tremendous value, sometimes valued at hundreds of millions of dollars.