Patents

Question 1

To receive capital gain treatment on a patent (blank) must be transferred.

Answer 1

Substantial rights - meaning there cannot be any restrictions on the use of the patent. If the patent is limited geographically or the transfer is for a period less than the remaining useful life substantial rights have NOT been transferred – no capital gain treatment.

Question 2

A holder of a patent is?

Answer 2

• Someone who created the patent
• Someone who purchases the patent from the creator before the patent is put to use

Question 3

Capital Gain or loss requirements for patents

Answer 3

the substantial rights are transferred by the holder

Question 4

If the patent meets the requirements, how do you calculate gain/loss on the patent

Answer 4

add the contengient and noncontiengent (whether lump sum or periodic) payments together and subtract out the basis.

The gain or loss is automatically long term capital gain/loss if the patent meets the requirments.