Patents

[amonEA]

I have a client that has developed this product for past three years. This product in which he has a lot of time and money into has just recently been recognized by a major manufacturer that wants to buy the product idea from him. If he were to sale this idea (intangible asset im assuming) what are his tax consequences? Is this a capital gain, ordinary income? If it is ordinary income what about his cost related to the development of the product? If it is a capital gain would he have to include his cost in his basis? How does this work?

Thanks
Amon

[Bees Knees]

TTB, page 25-3 says the sale of self created goodwill and other intangibles is a capital gain. Costs incurred to create the intangible asset are added to basis, unless they were deducted as research and experimentation costs.

[totb2007]

What kind of costs could one deduct? I would not think one could deduct an hourly rate for self-created stuff? Just curious.

[amonEA]

Patent

His cost are not his personal time. They are strictly attorney fees, materials, etc. Thanks for your help with this matter!