Costs that are capitalized are recorded as assets rather than expenses that reduce income for the accounting period. U.S. accounting guidelines known as generally accepted accounting principles, or GAAP, permit businesses to capitalize certain costs related to intangible assets, such as patents, copyrights, trademarks and goodwill. Costs that are capitalized are amortized or expensed throughout the asset’s economic life or the period of time the business derives benefits from the asset’s use.

Types of Intangible Assets

Intangible assets include long-term legal rights and other forms of intellectual capital that are acquired or internally developed by a business to provide operational benefits over several accounting periods. Some of these assets include patents, trademarks, franchises, copyrights and goodwill. The costs of intangible assets that are purchased from an independent party are usually recorded as assets. For example, goodwill is capitalized for the excess of the purchase price of a business’s assets or stock over their fair value.

Expensed Costs

The costs related to internally developed or unidentifiable intangible assets are expensed in the period the cost is incurred, with certain exceptions. For example, costs related to developing, maintaining or restoring goodwill and most costs related to trademarks are expensed against income. Costs that carry a high degree of uncertainty as to their future benefit, such as research and development and computer software costs related to planning, design and testing, are also expensed.

Capitalized Costs

There are certain costs related to internally developed intangible assets that can be capitalized. These costs include legal fees and other costs related to the successful defense of a patent, trademark or copyright in court, registration or consulting fees for the intangible asset, trademark design costs and any other direct cost incurred to obtain the asset. Software costs are capitalized after it’s established that the software developed for sale or internal use is “technologically feasible," or the product’s design and a working model have been completed. The capitalized costs of purchased intangible assets can be either the fair value given or the fair value of the property acquired.


The value of intangible assets diminishes over time; this decrease in value is the amortization recorded in every accounting period throughout the asset’s economic life. For intangible assets with definite lives, the amortization is calculated by taking the capitalized cost and dividing by the asset’s economic life. Patents have the option of amortization over their economic life or their remaining legal life. Assets with indefinite lives and goodwill are not amortized but are tested for impairment.