Tax amortization benefit

When the purchaser of an intangible asset is allowed to amortize the price of the asset as an expense for tax purposes, the value of the asset is enhanced by this tax amortization benefit.

[1] Specifically, the fair market value of the asset is increased by the present value of the future tax savings derived from the tax amortization of the asset.

[2] This circularity can be handled using a two-step procedure consisting in estimating the value of the intangible asset in the absence of the tax amortization benefit first and then grossing up the previous value by a tax amortization benefit factor.

The tax amortization period might be different from the useful life used in accounting.

For example, while trademarks can have an indefinite useful life for accounting purposes, the tax legislation of the United States establishes a mandatory 15-year amortization period for trademarks.