Are websites domain names or other digital assets deductible or depreciable?

Tax treatment of digital assets like websites, domain names, and computer software depends on how the asset is acquired, what type of asset it is, and how it's used in your business. Generally, these costs must be capitalized and recovered through amortization or depreciation rather than deducted immediately.

Overview: Capitalization vs. Deduction

According to IRS Publication 535, you must capitalize (rather than deduct) costs that are part of your investment in your business, called "capital expenses." Capital expenses include business assets and improvements. You recover these costs through depreciation, amortization, or depletion over time.

Domain Names

The IRS provided detailed guidance on domain names in Chief Counsel Advice 201543014 (October 2015), establishing clear rules for their tax treatment.

Capitalization Required

Costs incurred to acquire a domain name from the secondary market for use in your trade or business must be capitalized under IRC Section 263(a) as an intangible asset. This applies whether the domain name is generic (like "cars.com") or non-generic (like a company name). The Ninth Circuit Court of Appeals has confirmed that a domain name is a form of intangible property (Kremen v. Cohen, 337 F.3d 1024, 1029 (9th Cir. 2003)).

Amortization Period: 15 Years

Most purchased domain names qualify as Section 197 intangibles and must be amortized ratably over 15 years, beginning with the month in which the domain name was acquired.

Domain Name Categories

Domain Names Not Qualifying as Section 197 Intangibles

If a purchased domain name does not qualify as a Section 197 intangible, it is subject to IRC Section 167. However, the 15-year safe harbor in Treasury Regulation Section 1.167(a)-3(b) does not apply to acquired domain names. According to the IRS, because a business usually intends to use a domain name for an indeterminate period of time, the registration period is not considered its useful life for depreciation purposes. In this case, the taxpayer cannot amortize the domain name unless they can establish a limited useful life.

Website Development Costs

Website development costs are treated similarly to computer software development costs.

Internal Website Development

For tax years beginning after December 31, 2021, IRC Section 174 (as amended by the Tax Cuts and Jobs Act) requires specified research or experimental (SRE) expenditures to be capitalized and amortized over:

• 5 years for domestic research
• 15 years for foreign research

This includes costs to develop website software and functionality. Prior to 2022, taxpayers could elect to deduct these costs currently or amortize them over 60 months.

Note: Beginning in 2025, domestic research and experimental expenditures can once again be deducted as current business expenses OR the taxpayer can elect to capitalize and amortize over 60 months or more. See Revenue Procedure 2025-28.

Purchased Website/Software

Costs to acquire a completed website (including its software) are generally capitalized and amortized:

• 36 months under IRC Section 167(f)(1) if not a Section 197 intangible
• 15 years if the website qualifies as a Section 197 intangible (e.g., acquired as part of a business acquisition)

Computer Software

IRS Revenue Procedure 2000-50 and Publication 946 provide guidance on computer software.

Acquired/Purchased Software

Developed Software (Tax Years Beginning After 2021)

Software development costs are subject to the Section 174 capitalization requirements:

• 5 years amortization for domestic development
• 15 years amortization for foreign development

Off-the-Shelf Software

Per IRS Publication 946, off-the-shelf computer software qualifies for the Section 179 deduction. This is computer software that is:

• Readily available for purchase by the general public
• Subject to a nonexclusive license
• Not substantially modified

This allows immediate expensing up to the Section 179 dollar limits ($1,220,000 for tax year 2024).

Section 197 Intangibles

Section 197 intangibles must be amortized over 15 years using the straight-line method. According to the IRS, Section 197 intangibles include:

• Goodwill
• Going concern value
• Workforce in place
• Business books and records
• Patents, copyrights, formulas, processes, designs, patterns, know-how
• Customer-based intangibles (customer lists, relationships)
• Supplier-based intangibles
• Licenses and permits
• Covenants not to compete
• Franchises, trademarks, and trade names

Self-Created Intangibles Exception

Under IRC Section 197(c)(2), certain self-created intangibles are excluded from Section 197 treatment. However, this exception does not apply to:

• Franchises, trademarks, or trade names (Section 197(d)(1)(F))
• Covenants not to compete (Section 197(d)(1)(E))
• Licenses and permits (Section 197(d)(1)(D))

This exception also does not apply if the intangible is created in connection with a transaction involving the acquisition of a trade or business.

Digital Asset Tax Treatment

Reporting Requirements

Amortization of intangible assets is reported on Form 4562, Depreciation and Amortization, Part VI. You must provide:

• Description of the costs
• Date amortization begins
• Amortizable amount
• Applicable code section
• Amortization period
• Amortization for the current year

2026 Updates:

1. Website & Software Development

Under the new IRC Section 174A (introduced by the OBBBA), the mandatory 5-year amortization for domestic research and development—which included website and software development—has been repealed for tax years beginning after December 31, 2024.

• Domestic Development (U.S. based): You can now fully deduct these costs in the year they are paid or incurred. Alternatively, you can still elect to capitalize and amortize them over 60 months if you prefer to spread out the deduction.
• Foreign Development: If you hire a developer outside the U.S., you must still capitalize those costs and amortize them over 15 years.
• Transition Rule: If you were forced to capitalize costs in 2022, 2023, or 2024, the OBBBA allows you to "catch up." You can generally deduct the remaining unamortized balance of those domestic costs on your 2025 or 2026 return.

2. Domain Names

The tax treatment for domain names remains more rigid because they are considered "indefinite-lived" intangible assets.

• Acquired Domain Names: If you buy a domain name (e.g., from a broker or another business), it is a Section 197 intangible. You must amortize the cost over 15 years (180 months).
• Annual Registration Fees: These are not capital assets. Your yearly renewal fees (e.g., $15–$50) are fully deductible as ordinary business expenses.
• Self-Created Domains: If you are the first to register a new domain for a nominal fee, there is usually nothing to amortize; the small fee is just a current expense.

2026 Summary

Important Note on Bonus Depreciation

The OBBBA also restored 100% Bonus Depreciation for the 2025 and 2026 tax years. 

Related Questions

• Can Section 179 limitations be carried forward, and if so, how does the carryover work?
• What is qualified improvement property QIP?
• What was federal bonus depreciation in 2025?

Sources:

• IRS Publication 946, How To Depreciate Property
• IRS Publication 535, Business Expenses
• IRS Publication 551, Basis of Assets
• IRS Publication 544, Sales and Other Dispositions of Assets
• Instructions for Form 4562
• Instructions for Schedule C (Form 1040)
• Revenue Procedure 2000-50
• Notice 2023-63
• Chief Counsel Advice 201543014 
• Section 197 intangible