We have discussed about the tax deductions applicable if we purchase an off-the-shelf software product. If we are purchasing a new business, say we're purchasing a new grocery shop. In this case we'll be purchasing all the assets including the billing software which is an off-the-shelf software. In such cases the off-the-shelf software tax deductions (3 year straight-line depreciation) is not applicable.
In this case the software must be depreciated over a period of 15 years using straight-line depreciation. This is called as amortization.
To make it simple , if an off-the shelf software :
1) Is newly purchased - it comes under 3 year straight line depreciation applicable until December 31, 2010. It is included in Section 179
2) Comes as a part of business purchase (or) asset purchase - it comes under 15 year straight-line depreciation called as amortization
In this case the software must be depreciated over a period of 15 years using straight-line depreciation. This is called as amortization.
To make it simple , if an off-the shelf software :
1) Is newly purchased - it comes under 3 year straight line depreciation applicable until December 31, 2010. It is included in Section 179
2) Comes as a part of business purchase (or) asset purchase - it comes under 15 year straight-line depreciation called as amortization
