What Is Intangible Personal Property?

What Is Intangible Personal Property?

Let me explain intangible personal property to you directly: it's an item of value that you can't touch or physically hold. You or a corporation can own these assets. They include things like image, social, and reputational capital, along with digital assets, copyrights, patents, and investments. This is the opposite of tangible personal property, which you can physically touch and which carries a clear value, such as machinery, jewelry, or electronics.

Key Takeaways

Intangible personal property has no physical shape but represents something else of value. Intellectual property stands out as one of the most common forms. For individuals, examples include image, social, and reputational capital, plus personal social media pages and other digital assets. Companies deal with intangibles like patents, copyrights, life insurance contracts, securities investments, and partnership interests. Remember, it's the direct opposite of tangible personal property, which includes items you can touch and assign value to, like machinery, jewelry, electronics, and similar goods.

Understanding Intangible Personal Property

You should know that personal property splits into categories, mainly tangible and intangible. Tangible property is anything you can hold with definitive value, while intangible property lacks obvious value and can't be touched. I'll cover the differences more below.

The value of intangible personal property comes from its associated benefits and recognition. Intellectual property is a prime example. Other types include life insurance contracts, securities investments, royalty agreements, and partnership interests. For companies, common forms are goodwill, research and development (R&D), and patents.

Some of these intangible items count as capital assets and show up on a company's financial statements, while others don't. For instance, a company lists a trademark or patent as an asset on its balance sheet.

A company might need to research deeply to set a realistic market price for intangible objects. Once valued, the company can write off some creation costs, like building a customer mailing list or hiring a lawyer for a patent application.

Fast Fact

Intangible personal property is often called incorporeal property.

Special Considerations

The IRS imposes capital gains taxes on tangible property sales for individuals and corporations, but it's less straightforward for intangible assets. Without physical shape, these lack a hard value, making them tough to account for and evaluate. Not all intangible personal property is taxable as a result.

However, some intangible assets do qualify for capital gains or losses. You realize gains when selling at a higher price and losses at a lower one. Value depends on intellectual or non-physical attributes. For example, a musical composition gets taxed if sold at a different price than purchased.

While tangible assets depreciate, the IRS requires amortizing over 15 years the capitalized costs of intangibles purchased before August 1993, as they typically have a 15-year life. This applies to assets held for trade or business.

Warning

Certain intangible assets may be taxed as ordinary income due to the Tax Cuts and Jobs Act of 2017, including intellectual property, digital assets, or patents. Consult a tax professional to handle your intangibles properly.

Intangible Personal Property vs. Tangible Personal Property

As I mentioned, intangible personal property is anything without obvious value that you can't physically manipulate. Tangible personal property is anything you can hold with discernible value, and it can be moved.

Tangible assets serve in business operations or daily life, like machinery, vehicles, jewelry, art, electronics, and furniture. Smartphones and collectibles fit here too.

This property depreciates, either accelerated or over five- or seven-year periods. It's taxed on an ad valorem basis, needing an appraiser for value, or on actual value—the sale minus purchase price difference.

Important

Real estate isn't personal property because it can't be moved, which is key in defining personal property.

Examples of Intangible Personal Property

Consider Firm XYZ, which invented a liquid that blends a tattoo into surrounding skin, making it invisible, plus a solvent to remove it. They patent both formulas. The patent prevents copying and grants sole ownership for its duration.

The firm gains financial benefits as the sole seller of this tattoo-obstructing product. These benefits are represented by the patent, which has no inherent value but is valuable due to future gains. The company lists the patent as a capital asset and writes off some patent-listing expenses.

What Types of Assets Are Considered Intangible Personal Property?

Intangible personal property is anything without obvious assigned value that can't be physically held. Examples are copyrights, patents, intellectual property, investments, digital assets, and items with image, social, or reputational capital.

What's the Difference Between Intangible and Tangible Personal Property?

Intangible personal property is any asset with value but no physical nature, like copyrights, patents, intellectual property, and investments. Assets with social or reputational capital also qualify. Tangible personal property refers to touchable assets with assigned value, such as jewelry, art, machinery, and electronics.

Is Intangible Property Taxable?

Intangible personal property lacks physical shape and assigned value, making it hard to evaluate. But some forms face capital gains taxes when sold higher than purchased. Value and gains stem from physical attributes and intellectual content. Music compositions, for instance, can yield gains when sold. Some assets, like patents or intellectual property, may be taxed as ordinary income.