{"id":2199,"date":"2022-01-11T15:31:14","date_gmt":"2022-01-11T15:31:14","guid":{"rendered":"https:\/\/gtmtax.com\/insight\/developed-software-fixed-asset-changes-for-2022\/"},"modified":"2025-08-05T12:49:44","modified_gmt":"2025-08-05T12:49:44","slug":"developed-software-fixed-asset-changes-for-2022","status":"publish","type":"insight","link":"https:\/\/gtmtax.com\/insight\/developed-software-fixed-asset-changes-for-2022\/","title":{"rendered":"How Recent Tax Changes Affect Your Developed Software Depreciation Life"},"content":{"rendered":"<div id=\"sh-block--1284961708\" class=\"sh-block-wrapper text-block \">\n\n\n\n<!-- text-block\/render.twig-->\n<div class=\"container\">\n    <div class=\"wysiwyg layout-1col\">\n        <p>Some changes are in store for <a href=\"https:\/\/gtmtax.com\/corporate-tax-services\/tax-consulting-planning\/tax-depreciation\/\">tax depreciation<\/a> as a result of the <a href=\"https:\/\/gtmtax.com\/tax-insights\/?_resource_topics=tcja\">Tax Cuts and Jobs Act<\/a>. These changes will affect developed software expensing, fixed assets, and tax depreciation calculations moving forward. Here&#8217;s what you need to know.<\/p>\n<h2>Fixed Asset Types That Are Impacted By Recent Changes<\/h2>\n<p>When considering the recent changes, it is important to delineate between two types of assets: <strong>off-the-shelf software and developed software.<\/strong><\/p>\n<p><em>Off-the-shelf software is generally defined by the following fact patterns:<\/em><\/p>\n<ul class=\"checklist\">\n<li>The software is available to the general public<\/li>\n<li>The software is subjected to a nonexclusive license<\/li>\n<li>The software has not been substantially modified<\/li>\n<\/ul>\n<p><em>Developed software is more widely defined as any software that is developed by a taxpayer for its own use or sale.<\/em><\/p>\n<p>Assets that meet the definition of <strong>developed software<\/strong> will be impacted by this change starting 2022.<\/p>\n<h2>Prior Developed Software Treatment<\/h2>\n<p>Prior to January 1, 2022, there were three approaches to the expensing of developed software:<\/p>\n<ul class=\"checklist\">\n<li><strong>Current Period Expensing (Code Section 162).<\/strong>\u00a0The first approach handled any expenditures incurred that were not chargeable to a capital account. These expenses could be deducted in the period incurred as current expenses.<\/li>\n<li><strong>Amortized over 5 years (Code Section 174)<\/strong><i style=\"text-indent: -0.25in;\">. <\/i><span style=\"text-indent: -0.25in;\">This election (174(b)) could be made if the expenses were chargeable to a capital account that did not have a known useful life. They could be amortized over a 5-year period using the straight-line method.<\/span><\/li>\n<li><strong>Amortized over 3 years (Code Section 167).<\/strong><span style=\"text-indent: -0.25in;\"> If costs were associated with the software capital account, they could be capitalized and amortized over a 3-year period starting when the software was placed in service. This made those costs eligible for bonus depreciation.<\/span><\/li>\n<\/ul>\n<h2>Current Developed Software Treatment<\/h2>\n<p>Under the current rules, any amount paid or incurred in relation to the development of software is treated as a research or experimental expense. This causes any of these costs to be amortized over a 5-year period, which establishes a new <strong>software amortization life<\/strong>. The in-service period will begin at the mid-point of the tax year that the costs are incurred.<\/p>\n<p>Tax reform can stress a company beyond their capacity. With the ever-changing guidance surrounding fixed assets, it is imperative to stay informed on the rulings that will affect how you <a href=\"https:\/\/gtmtax.com\/tax-insights\/articles\/tax-depreciation-understanding-the-basics\/\">calculate tax depreciation<\/a>. To learn more about GTM\u2019s <a href=\"https:\/\/gtmtax.com\/corporate-tax-services\/tax-consulting-planning\/tax-depreciation\/\">Tax Depreciation Services<\/a> or to speak with someone who can guide you through the process, <a href=\"https:\/\/gtmtax.com\/contact\/\">contact us<\/a>.<\/p>\n\n    <\/div>\n<\/div><\/div>","protected":false},"template":"","meta":{"_acf_changed":true},"class_list":["post-2199","insight","type-insight","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.8 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Understanding Software Depreciation Life Changes<\/title>\n<meta name=\"description\" content=\"&quot;Discover how recent tax reforms impact your software depreciation life. 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