MACRS Calculations
You must depreciate most tangible property that you place in service after 1986 using the Modified Accelerated Cost Recovery System (MACRS), for tax purposes. Depending on the type of property, you recover the cost over a 3-, 5-, 7-, 10-, 15-, 20-, 27 1/2-, 31 1/2-, or 39-year period. You recover the cost by using the applicable depreciation method, the applicable recovery period, and the applicable convention.
MACRS calculations use these statutory recovery methods and conventions:
Period of Calculation |
Statutory Recovery Method |
|---|---|
3-, 5-, 7-, 10-, 15-, and 20-year period calculations |
The system calculates depreciation using the 200 percent declining balance method, and the mid-year or mid-quarter convention with a switch to the straight-line method in later years. |
27 1/2-, 31 1/2-, and 39-year period calculations |
The system calculates depreciation by using the straight line method and the mid-month convention. |
To compute depreciation, the system uses MACRS depreciation tables, which contain the annual percentage depreciation rates to be applied to the adjusted basis of property in each tax year. The tables include the appropriate convention and a switch from the declining balance method to the straight-line method in the appropriate year.
Use one of these conventions with this depreciation method:
Calculation Method |
Description |
|---|---|
Mid-month |
You can apply this convention to residential and nonresidential real property. Based on this convention, the system calculates one-half month's depreciation for the month that you acquired or disposed of the property. |
Half-year |
Apply this convention to property other than residential and nonresidential property. Based on this convention, the system calculates one-half year's depreciation for the year that you acquire or dispose of the property. |
Mid-quarter |
You can apply this convention to all property other than nonresidential real property and residential rental property if more than 40 percent of the total basis of such property is placed in service during the last three months of the tax year. Based on this convention, the system calculates depreciation at the midpoint of the quarter that you acquire or dispose of the property. The system computes the MACRS deduction for the first year by determining the depreciation for the full tax year and then multiplying it by one of these percentages, depending on the quarter that you placed the property in service:
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