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Updated for 2011
Small Business Deductions: Depreciation
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Computing Depreciation
The following example will demonstrate how to use the table for: Accelerated MACRS
EXAMPLE: Accelerated MACRS"
Assumptions:
- 200% accelerated MACRS (DB) is used
- Property is used 100% for business purposes
- The half-year convention applies
Additional facts:
- During February 2008 you place a copier in service costing $5,000.
- The copier is 5-year property
- The half-year convention applies
- Here are the half-year convention rules:
- The half-year convention assumes that the property was placed in service in the middle of year regardless of the actual date it was placed in service during the year (provided the mid-quarter convention rules do not apply).
- Only one-half the annual depreciation (six months worth) may be deducted in the first year
the property is placed in service.
- The first-year rate of 20% (half of the annual 40% rate) in the table below takes this into account.
- Each year thereafter, you may deduct a full year's worth of depreciation
- Only one-half the annual depreciation may be claimed in the last year of the property's recovery period or the year the property is disposed of, whichever comes first.
- If you buy property, then dispose of it in the same year, no depreciation is allowed to be deducted that year.
| year | 200% rate | 150% rate |
|---|---|---|
| 1 | 20.00% | 15.00% |
| 2 | 32.00% | 25.50% |
| 3 | 19.20% | 17.85% |
| 4 | 11.52% | 16.66% |
| 5 | 11.52% | 16.66% |
| 6 | 5.76% | 8.33% |
Remember, the above table reflects a 20% rate in the first year because under the half-year convention only 50% of the annual accelerated MACRS rate (40%) is allowed in the first and last recovery year (or the year the property is disposed of, whichever comes first).
1) Depreciation Computation Assuming:
- 100% business use of property
- 200% MACRS rate
- Half-year convention
Year 1: 20% x $5,000 = $1,000 (annual depreciation)
Year 2: 32% x $5,000 = $1,600 (annual depreciation)
2) Depreciation Computation Assuming:
- 80% business use of property
- 200% MACRS rate
- Half-year convention
Year 1: 80% x $5,000 x 20% = $800 (annual depreciation)
Year 2: 80% x $5,000 x 32% = $1,280 (annual depreciation)
Note: The recovery period extends six years even though the table indicates that the property is 5-year property.
This is because, under the half-year convention, you may only deduct 50% of the annual depreciation in the first and last year of the property's recovery period (or year property is disposed of, whichever comes first.
Next:
Depreciation: EXAMPLE 2: Straight-Line Depreciation
Related Links
- Patents and Copyrights
- Property that May Not be Depreciated.
- Listed Property
- Investment Use Property
- Managing Your Investments
- Depreciation Methods (MACRS)
- Form 4562, Depreciation and Amortization
- How the General Depreciation System and Alternative Depreciation System Differ
- Depreciation Conventions
- Recovery Periods, Class Life, Examples of Property
- Points to Keep in Mind When Depreciating Property
- Converting Personal Use Property to Business Use
- How to Compute Depreciation
Copyright © 2008-2012 Larry Villano. All rights reserved.