Example of How to Use the Depreciation Tables for MACRS Straight-Line Depreciation

The following example will show you how to use the table for: Straight-line depreciation.

EXAMPLE: MACRS Straight-Line Depreciation

Assumptions:

  • MACRS straight-line depreciation is used
  • Property is used 100% for business purposes
  • The half-year convention applies

Additional facts:

  • During February 2013 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 10% (half of the annual 20% 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.
Straight-Line Rates 5-Year Property
Year Rate
1 10%
2 20%
3 20%
4 20%
5 20%
6 10%

Remember, the above table reflects a 10% rate in the first year because under the half-year convention only 50% of the annual MACRS straight-line rate (20%) 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
  • MACRS straight-line depreciation
  • Half-year convention

Year 1: 10% x $5,000 = $500 (annual depreciation)

Year 2: 20% x $5,000 = $1,000 (annual depreciation)

2) Allocation of Depreciation:

If you use depreciable business property less than 100% for business use, you must multiply and depreciation allowance shown in the table by the percentage of business use to determine the amount of depreciation you can claim.

This is because the depreciation tables assume 100% business use.

Assume:

  • 80% business use of property
  • MACRS straight-line depreciation
  • Half-year convention

Year 1: 80% x $5,000 x 10% = $400 (annual depreciation)

Year 2: 80% x $5,000 x 20% = $800 (annual depreciation)

Note: The recovery period in the table 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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