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There are many differences between amortization and depreciation. Below is a definition of each to assist you in determining whether amortization or depreciation applies to the asset in question.

Amortization - Amortization is similar to the straight line method of depreciation in that an annual deduction is allowed to recover certain costs over a fixed time period. You amortize such items as the costs of starting a business, goodwill, and certain other intangibles. Intangible assets lack physical substance and are commonly referred to as "Intellectual Property." Examples include patents, trademarks, research, and copyrights.

Depreciation - Depreciation is the annual deduction that allows you to recover the cost or other basis of your business or investment property over a certain number of years. Depreciation starts when you first use the property in your business or for the production of income. It ends when you take the property out of service, deduct all your depreciable cost or basis, or no longer use the property in your business or for the production of income. You can depreciate tangible property such as buildings, machinery, vehicles, furniture, and equipment. For an asset to qualify for deprecation, you must own the asset, use it in business or income producing activities, and be expected to last more than a year. Land is not a depreciable asset.


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