Deductibility as Research and Development Costs. If you are engaged in a trade or business, then the costs you incur for attorney fees to obtain a patent may be deductible in the year they are incurred if the taxpayer adopts the method allowing such deductions. Consult your accountant to see if you can qualify.

IRS Regulations. Attorneys' fees expended in making and perfecting a patent application may be deductible as "research or experimental expenditures" under section 174 of the Internal Revenue Code, according to IRS regulation 26 CFR § 1.174-2. More specifically, IRS 26 CFR § 1.74-1 permits research and development expenditures, which include attorney fee expenditures, to be treated under IRS regulation 26 CFR § 1.174-3 as expenses not chargeable to a capital account and deducted in the year in which they are paid or incurred, or, at the option of the taxpayer, they may be deferred as per IRS regulation 26 CFR § 1.174-4 and amortized.

2017 Tax Cuts and Jobs Act (Public Law No.115-97). Certain patents, designs and secret formulas or processes are no longer considered “capital assets.” The act removes the ability to treat such intellectual property as a capital asset that would have been subject to lower capital gains tax rate of 20%. It now treats gains from the sale of such assets as ordinary income, subject to higher rates.

This file last modified 05/19/20.
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