Amortization vs. Depreciation vs. Impairment: What Every Houston Business Owner Should Know

I sit down with Houston business owners every week who mix up these three terms. They’re not dumb. The terms just sound like they all mean the same thing. They don’t, and the difference can cost you real money at tax time.

Let me walk you through each one the way I explain it to clients.

Amortization: Your Invisible Assets

Amortization is how you write off things you can’t touch. Software licenses, trademarks, goodwill from buying another business, customer lists. These have value, but they’re not sitting in your warehouse.

Most of these get spread over 15 years under Section 197 of the tax code. I had a client on Hillcroft who bought a competitor’s customer list for $45,000. He wanted to deduct the whole thing that year. I told him no, that’s $3,000 a year for 15 years. He wasn’t happy, but that’s how the IRS works.

Software you develop in-house is different. That typically doesn’t get amortized until you sell it or license it out.

Depreciation: Your Physical Stuff

Depreciation covers things you can kick. Trucks, computers, machinery, office furniture, the HVAC system in your building.

The IRS uses a system called MACRS (Section 168) that assigns different write-off periods. Your work truck might be five years. Office furniture is seven. A commercial building is 39 years. You need to know which bucket your equipment falls into or you’ll miss deductions.

Section 179 is where small business owners catch a break. You can deduct the full purchase price of qualifying equipment the year you buy it, up to $1.25 million. I had a plumbing contractor in Alief who bought a $65,000 service van last year. He wrote off every penny of it in 2025. That’s $65,000 off his taxable income right away instead of spreading it over five years.

Bonus depreciation is still in the picture too, though it’s phasing down. Either way, you need proper documentation. Keep your purchase receipts and put-in-service dates organized. That paperwork saved me once when the IRS questioned a client’s depreciation schedule.

Impairment: When Something Loses Value Fast

Impairment is different from the other two. It’s not a scheduled write-down. It happens when an asset suddenly loses value because it broke, became obsolete, or the market shifted under you.

Say you own a $200,000 piece of specialty equipment and a new technology makes it nearly worthless. You record that loss on your financial statements. But here’s the catch: you can’t deduct it on your taxes right away. The IRS under Section 165 wants a specific event like a sale, abandonment, or destruction before they’ll let you take the loss.

I see this all the time with Houston oil and gas service companies. Equipment worth $150,000 when oil was $80 a barrel might be worth $40,000 when prices drop. The financial statements show impairment, but the tax deduction has to wait.

Why This Matters for Your Books

Banks and lenders look hard at how you track your assets. If you’re applying for an SBA loan through a lender in the Galleria or refinancing through your bank in the Woodlands, they want to see clean asset records. It tells them you know what your business owns and what it’s worth.

I’ve watched sloppy asset tracking kill loan applications. Underwriters see it as a red flag that you’re not on top of things.

A Real Example

A construction company out near Katy bought $100,000 in equipment three years ago. Newer models came out and theirs started falling behind. They recorded impairment on their financial statements showing the equipment was now worth $60,000. Meanwhile, they kept taking regular tax depreciation each year.

When they finally sold the equipment for $30,000, the difference between the tax basis and the sale price became a deductible loss. That’s when the tax benefit actually showed up on their return.

Keeping It Organized

I tell every client: set up a fixed asset ledger. List the purchase date, what you paid, which depreciation method you’re using, and when you got rid of it. Review it once a year.

I’ve found businesses still depreciating equipment they sold two years ago. Some are paying for software subscriptions they stopped using. An annual asset review catches that stuff and keeps your taxes clean.

The Bottom Line

These three concepts help you match your expenses to your income. Get them wrong and you’re either overpaying taxes or heading into an audit with bad records.

At EZQ Group, we handle asset tracking and depreciation schedules for Houston businesses. I’ve seen too many owners skip this work and regret it at tax time.

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Frequently Asked Questions

Is an impairment deductible for taxes? Not until it’s realized. Section 165 requires a specific event like a sale, abandonment, or casualty before you can take the deduction.

How do Section 179 and bonus depreciation differ? Section 179 has annual income-based limits. Bonus depreciation applies automatically unless you elect out, and it phases down each year.

How long do I amortize intangibles? Most acquired intangibles amortize over 15 years under Section 197. There are a few exceptions, but that’s the standard.

Ready to get your asset tracking in order? Contact EZQ Group for a consultation.