The term intangible personal property refers to an item of value that cannot be touched or physically held. These assets can be held by both individuals and corporations. Intangible personal property can be anything that has image, social, and reputational capital, along with digital assets, copyrights, patents, and investments. Intangible personal property (IPP) is the opposite of tangible personal property, such as machinery, jewelry, and electronics, which can be physically touched and possess a tangible value.
Key Takeaways
- Intangible personal property has no physical shape but represents something else of value.
- Intellectual property is one of the most common forms of intangible personal property.
- Examples include image, social, and reputational capital, as well as personal social media pages and other personal digital assets.
- Companies also hold intangible property like patents, copyrights, life insurance contracts, securities investments, and partnership interests.
- Intangible personal property is the opposite of tangible personal property, which includes items like machinery, jewelry, and electronics.
Understanding Intangible Personal Property
Personal property can be divided into tangible and intangible categories. Tangible personal property is anything that can be held and has definitive value, while intangible personal property involves assets that don’t have any obvious physical form or value and can’t be touched.
The value of intangible personal property lies in associated benefits and value recognition. Intellectual property is a ubiquitous example. Other types include life insurance contracts, securities, royalty agreements, and partnership interests. For companies, common intangible assets include goodwill, research and development (R&D), and patents.
Some of these intangible items are acknowledged as capital assets on a company’s financial statements, while others may not be included. For instance, a trademark or patent would appear on a company’s balance sheet. Companies may conduct in-depth research to assign a realistic market price for intangible assets. Once a value is determined, the company can write off some of the associated costs, such as compiling a customer list or filing a patent application.
Special Considerations
The Internal Revenue Service (IRS) imposes capital gains taxes on tangible property sales, but the taxation of intangible assets can be convoluted. Without a physical form, assigning value to intangible assets is challenging. Consequently, not all intangible personal properties are taxed.
However, some intangible assets are taxable. Capital gains occur when these assets are sold for more than their purchase price, while capital losses happen when they’re sold for less. For example, a musical composition sold at a new price could be subject to capital gains tax.
While tangible assets can be depreciated, the IRS requires the amortization of certain intangibles purchased before August 1993 over a 15-year period. This usually applies to trade or business assets.
Additionally, some intangible assets may be taxed as ordinary income, especially following the Tax Cuts and Jobs Act of 2017. This scenario can apply to intellectual property, digital assets, or patents. It’s essential to consult a tax professional on the treatment of these intangibles.
Intangible vs. Tangible Personal Property
Intangible personal property has no obvious physical value and cannot be manipulated physically, whereas tangible personal property includes items that can be held and have discerner value. Tangible assets can be used daily by both individuals and businesses. Examples include machinery, vehicles, jewelry, art, electronics, and furniture. Collectibles and smartphones also fall into this category.
Tangible personal property is subject to depreciation, either on an accelerated basis or over typical periods of five or seven years. Taxation can occur on an ad valorem basis, necessitating an appraiser to assess value, or on actual value—comparing the sale and purchase prices.
Real estate is not considered personal property as it cannot be moved—this immobility is a key factor in identifying personal property.
Examples of Intangible Personal Property
Imagine Firm XYZ invents a liquid that makes tattoos disappear when rubbed onto them and a solvent to remove the solution. The firm secures a patent for both formulas, granting them exclusive rights over the invention. This patent holds significant financial benefits by making the firm the sole seller of the product. While the patent itself has no inherent value, it represents the exclusive future financial benefits for the company. Firm XYZ can list the patents as capital assets and write off some related expenses.
What Types of Assets Are Considered Intangible Personal Property?
Intangible personal property includes any asset that can’t be held physically and has no obvious assigned value. Examples include copyrights, patents, intellectual property, investments, digital assets, and various forms of image, social, or reputational capital.
Difference Between Intangible and Tangible Personal Property?
Intangible personal property encompasses assets with value that aren’t physical, such as copyrights, patents, intellectual property, and investments. Tangible personal property includes assets that can be physically interacted with and have an assigned value, such as jewelry, art, machinery, and electronics.
Is Intangible Property Taxable?
Intangible personal property lacks physical shape and assigned value, complicating accountability and evaluation. However, some forms are subject to capital gains tax if sold at a higher price than their purchase price. Their value is derived from both physical attributes and intellectual content, as seen with valuable musical compositions. Certain intangible assets like patents or other intellectual property might be taxed as ordinary income.
Related Terms: tangible personal property, intellectual property, capital assets, valuation, taxation.
References
- Internal Revenue Service. “Intangibles”.
- Internal Revenue Service. “Tax Cuts and Jobs Act: A Comparison for Business”.
- Internal Revenue Service. “Part 4. Examining Process-Chapter 48. Engineering Program-Section 3. Tangible Personal Property Valuation Guidelines”.
- Internal Revenue Service. “Part 1. Organization, Finance, and Management-Chapter 14. Facilities Management-Section 4. Personal Property Management”.
