Example of How to Use the Depreciation Tables for Accelerated MACRS

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 2012 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.
Accelerated MACRS Rates 5-Year Property - Half-Year Convention
Year 200% Rate 150% Rate
3-year property 20.00% 15.00%
5-year property 32.00% 25.50%
7-year property 19.20% 17.85%
10-year property 11.52% 16.66%
15-year property 11.52% 16.66%
20-year property 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.


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