Intangible Personal Property: Capital Gains, Royalties, and Estate Rules

The federal tax treatment of intangible personal property depends on what you do with the asset: sell it, license it, buy it as part of a business, create it through research, or pass it on. Selling a stock, patent, copyright, trademark, cryptocurrency, or similar asset triggers capital gains tax, with long-term rates of 0%, 15%, or 20% if you held it more than a year, plus a possible 3.8% surtax on high earners. License the same asset instead of selling it and the royalties are ordinary income, taxed at rates up to 37%. Buy intangibles with a business and you amortize the cost over 15 years. The classification you land in decides the rate, and the rate is the whole ballgame.

What Counts as Intangible Personal Property

Intangible personal property is anything you own that has value but no physical form. The two broad families are financial instruments — stocks, bonds, partnership interests, options — and intellectual property, which includes patents, copyrights, trademarks, trade secrets, and proprietary formulas. Goodwill, the reputational value of a business above the worth of its identifiable assets, sits alongside these as a Section 197 intangible.¹ Cryptocurrency and NFTs are treated as property too, not as currency.²

Capital Gains Tax When You Sell

Sell an intangible for more than your basis and the profit is a capital gain. Hold it longer than a year and you qualify for long-term rates. For 2026, the tiers are:³

0% on taxable income up to $49,450 for single filers ($98,900 married filing jointly)
15% above those thresholds up to $545,500 single ($613,700 joint)
20% above $545,500 single ($613,700 joint)

Sell within a year and the gain is short-term, taxed at your ordinary rate. The top marginal rate for 2026 is 37% for single filers earning above $640,600 ($768,700 joint).⁴ The gap between 15% long-term and 37% short-term is why the holding period is the first thing to check before selling.

The 3.8% Net Investment Income Tax

Higher earners owe an additional 3.8% surtax on net investment income, including capital gains from intangible sales, royalties, and interest. The tax applies when modified adjusted gross income exceeds $200,000 single or $250,000 joint, and those thresholds are not indexed to inflation.⁵ A high earner selling a patent portfolio can face a combined 23.8% federal rate on the gain rather than 20%.⁶

Royalties and Licensing Income

Licensing an intangible instead of selling it produces royalty income, which is ordinary income taxed at your regular marginal rate, up to 37% for 2026.⁴ Royalties do not qualify for capital gains rates because you haven’t disposed of the asset; you’ve allowed someone to use it.

Reporting depends on how you hold the asset. Passive holders report royalties from patents, copyrights, oil and gas properties, and name, image, and likeness deals on Schedule E.⁷ If you actively work as a writer, inventor, or artist, the IRS treats the same income as self-employment earnings reportable on Schedule C, which then carries Social Security and Medicare tax on top of income tax.

Buying Intangibles as Part of a Business

Section 197 controls the tax recovery of intangibles you acquire when you buy a business. You don’t deduct the purchase price in the year of purchase. Instead, you amortize the cost on a straight-line basis over 15 years, starting in the month of acquisition.¹ The rule sweeps in a wide list of acquired assets:

Goodwill and going concern value
Customer lists and supplier relationships
Patents, copyrights, and formulas
Licenses and permits granted by a government agency
Covenants not to compete entered into as part of the acquisition
Franchises, trademarks, and trade names
Workforce in place

Section 197 generally applies only to intangibles acquired with a business purchase, not to assets you create yourself. A customer list you build organically through years of marketing is outside the section. The same list, bought as part of acquiring a competitor, is amortized over 15 years.¹

Franchise and Trademark Transfers

Selling a franchise, trademark, or trade name is governed by Section 1253, which overrides standard capital gains treatment. If the seller retains any significant ongoing rights or control, payments are taxed as ordinary income rather than as a capital asset sale. Even in a clean transfer with no retained rights, any portion of the payment that is contingent on the buyer’s productivity or use of the asset is ordinary income.⁸ For the buyer, contingent payments made in equal annual installments through the agreement are deductible as business expenses.

Internally Developed Intangibles and R&D Costs

If you create intangibles through research rather than buying them, Section 174 controls. Research and experimental costs must be capitalized and amortized over 15 years, beginning at the midpoint of the tax year the expense is incurred. Full-year deductions in the year of spending are not allowed.⁹

The rule changed in 2025. Under the One, Big, Beautiful Bill, domestic R&D no longer gets the five-year amortization schedule it once had. All R&D expenditures now run on the same 15-year schedule regardless of where the research happens, and software development costs fall under the same treatment.⁹ Companies that spend heavily on product development wait much longer to recover those costs through deductions.

Digital Assets

Because cryptocurrency, NFTs, and other digital tokens are property for federal tax purposes, every sale, trade, or exchange is a taxable event running through the standard capital gains framework.² Bitcoin bought and held more than a year before sale at a profit qualifies for long-term rates. Crypto received as payment for services counts as ordinary income at fair market value on the date received.

Starting in 2026, brokers and exchanges report digital asset sales on the new Form 1099-DA, including gross proceeds and, for covered securities, cost basis.¹⁰ Prior to this, most crypto holders tracked their own transactions; the new reporting mirrors what stock brokerages have long done with Form 1099-B.

One current gap: the wash sale rule that blocks stock investors from claiming a loss and immediately repurchasing the same security does not yet apply to digital assets. A 2025 White House report has recommended extending the wash sale rule to crypto, so the loophole may not last.

Estate, Gift, and Basis Rules

Intangibles passed at death receive a stepped-up basis equal to fair market value on the date of death.¹¹ Stock bought for $50,000 that’s worth $500,000 at death passes to heirs with a $500,000 basis, and the appreciation during the owner’s lifetime escapes capital gains tax entirely.

The federal estate tax applies only to estates above $15,000,000 per individual in 2026, a threshold raised by the One, Big, Beautiful Bill Act. Married couples can shield up to $30 million between them.¹²

Lifetime gifts work differently. You can transfer up to $19,000 per recipient per year without triggering gift tax or using any of your lifetime exemption.¹² But gifted property does not get a stepped-up basis. The recipient takes your original basis and owes capital gains tax on the full appreciation when they sell.

Overstating Value Carries a Penalty

If you overstate the value of an intangible on a return and the IRS finds the claimed value was 150% or more of the correct amount, you face a 20% accuracy-related penalty on the underpayment. If the overstatement reaches 200% or more of the correct value, the penalty doubles to 40%.¹³ A current appraisal from a qualified professional is the best defense if the IRS questions a reported value.

State Income Tax

No state currently levies a recurring property tax on intangible assets like stocks and bonds; Florida repealed the last such tax effective January 1, 2007. States still reach intangibles through income tax, though. Sell a patent or collect royalties and most states with an income tax will claim their share.

Intangible property generally follows the owner’s domicile for state tax purposes rather than the location of the asset or the issuer. Live in a state with a 5% income tax and sell stock in a company based in a no-income-tax state, and your home state still taxes the gain. People with homes in more than one state sometimes face competing residency claims, and in the worst case two states may both try to tax the same gain.

Reporting Forms and Recordkeeping

Individual sales get listed on Form 8949, with description, dates, proceeds, and basis for each transaction.¹⁴ Totals flow to Schedule D (Form 1040) for the net capital gain or loss.¹⁵ Brokerages send Form 1099-B for securities transactions.¹⁶ Digital assets sold through an exchange in 2026 or later come on Form 1099-DA.¹⁰ When intangibles are transferred as part of a business acquisition, both buyer and seller file Form 8594 showing how the purchase price was allocated among asset classes, including goodwill.¹⁷

For intellectual property producing royalties, keep licensing agreements, registration certificates, and royalty statements to support Schedule E or Schedule C income. For any intangible, keep records of acquisition cost, purchase date, and basis-increasing expenses like patent prosecution legal fees.

The general recordkeeping period is three years from the date you file the return. Underreport income by more than 25% and the IRS window extends to six years. A worthless-securities loss claim requires records for seven years.¹⁸ For intangibles held for decades before sale, keep acquisition records the entire time you own the asset plus seven years after reporting the sale.

1
Office of the Law Revision Counsel. 26 USC 197 – Amortization of Goodwill and Certain Other Intangibles
2
Internal Revenue Service. Digital Assets
3
Internal Revenue Service. Topic No. 409, Capital Gains and Losses
4
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
5
Office of the Law Revision Counsel. 26 USC 1411 – Imposition of Tax
6
Internal Revenue Service. Topic No. 559, Net Investment Income Tax
7
Internal Revenue Service. 2025 Instructions for Schedule E (Form 1040)
8
Office of the Law Revision Counsel. 26 USC 1253 – Transfers of Franchises, Trademarks, and Trade Names
9
Office of the Law Revision Counsel. 26 USC 174 – Amortization of Research and Experimental Expenditures
10
Internal Revenue Service. Instructions for Form 1099-DA (2026)
11
Internal Revenue Service. Gifts and Inheritances
12
Internal Revenue Service. What’s New – Estate and Gift Tax
13
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
14
Internal Revenue Service. Instructions for Form 8949
15
Internal Revenue Service. About Schedule D (Form 1040), Capital Gains and Losses
16
Internal Revenue Service. Instructions for Form 1099-B (2026)
17
Internal Revenue Service. Instructions for Form 8594 – Asset Acquisition Statement
18
Internal Revenue Service. How Long Should I Keep Records