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Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year(s).

.Figuring MACRS deductions without using the tables will generally result in a slightly different amount than using the tables..

The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction.

You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property’s recovery period. For example, for 3-year property depreciated using the 200% declining balance method, divide 2.00 (200%) by 3 to get 0.6667, or a 66.67% declining balance rate. For 15-year property depreciated using the 150% declining balance method, divide 1.50 (150%) by 15 to get 0.10, or a 10% declining balance rate.

Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1 , later, under Examples.

If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it.

You figure depreciation for all other years (before the year you switch to the straight line method) as follows.

When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. The straight line method is explained later.

You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. If the number of years remaining is less than 1, the depreciation rate for that tax year is 1.0 (100%).

If you dispose of property before the end of its recovery period, see Using the Applicable Convention , later, for information on how to figure depreciation for the year you dispose of it.

Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method).

You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows.

When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. You must use the applicable convention in the year you place the property in service and the year you dispose of the property.

You use the calendar year and place nonresidential real property in service in August. The property is in service 4 full months (September, October, November, and December). Your numerator is 4.5 (4 full months plus 0.5). You multiply the depreciation for a full year by 4.5/12, or 0.375.

If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property.

If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0.5). The denominator is 12.

If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property.

If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property.

Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service.

A quarter of a full 12-month tax year is a period of 3 months. The first quarter in a year begins on the first day of the tax year. The second quarter begins on the first day of the fourth month of the tax year. The third quarter begins on the first day of the seventh month of the tax year. The fourth quarter begins on the first day of the tenth month of the tax year. A calendar year is divided into the following quarters.

If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service.

Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property.

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If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period.

The applicable convention (discussed earlier under Which Convention Applies ) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. See Straight line rate in the previous discussion. Use the applicable convention, as explained in the following discussions.

Examples

The following examples show how to figure depreciation under MACRS without using the percentage tables. Figures are rounded for purposes of the examples. Assume for all the examples that you use a calendar year as your tax year.

Example 1—200% DB method and half-year convention.

In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. You use GDS and the 200% declining balance (DB) method to figure your depreciation. When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. You did not place any property in service in the last 3 months of the year, so you must use the half-year convention.

You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). The result is 40%. You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. You apply the half-year convention by dividing the result ($400) by 2. Depreciation for the first year under the 200% DB method is $200.

You figure the depreciation rate under the SL method by dividing 1 by 5, the number of years in the recovery period. The result is 20%.You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. You apply the half-year convention by dividing the result ($200) by 2. Depreciation for the first year under the SL method is $100.

The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method.

You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). You multiply the result ($800) by the DB rate (40%). Depreciation for the second year under the 200% DB method is $320.

You figure the SL depreciation rate by dividing 1 by 4.5, the number of years remaining in the recovery period. (Based on the half-year convention, you used only half a year of the recovery period in the first year.) You multiply the reduced adjusted basis ($800) by the result (22.22%). Depreciation under the SL method for the second year is $178.

The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method.

You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). You multiply the result ($480) by the DB rate (40%). Depreciation for the third year under the 200% DB method is $192.

You figure the SL depreciation rate by dividing 1 by 3.5. You multiply the reduced adjusted basis ($480) by the result (28.57%). Depreciation under the SL method for the third year is $137.

The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method.

You reduce the adjusted basis ($480) by the depreciation claimed in the third year ($192). You multiply the result ($288) by the DB rate (40%). Depreciation for the fourth year under the 200% DB method is $115.

You figure the SL depreciation rate by dividing 1 by 2.5. You multiply the reduced adjusted basis ($288) by the result (40%). Depreciation under the SL method for the fourth year is $115.

The SL method provides an equal deduction, so you switch to the SL method and deduct the $115.

You reduce the adjusted basis ($288) by the depreciation claimed in the fourth year ($115) to get the reduced adjusted basis of $173. You figure the SL depreciation rate by dividing 1 by 1.5. You multiply the reduced adjusted basis ($173) by the result (66.67%). Depreciation under the SL method for the fifth year is $115.

You reduce the adjusted basis ($173) by the depreciation claimed in the fifth year ($115) to get the reduced adjusted basis of $58. There is less than one year remaining in the recovery period, so the SL depreciation rate for the sixth year is 100%. You multiply the reduced adjusted basis ($58) by 100% to arrive at the depreciation deduction for the sixth year ($58).

Example 2—SL method and mid-month convention.

In January, you bought and placed in service a building for $100,000 that is nonresidential real property with a recovery period of 39 years. The adjusted basis of the building is its cost of $100,000. You use GDS, the SL method, and the mid-month convention to figure your depreciation.

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You figure the SL depreciation rate for the building by dividing 1 by 39 years. The result is 0.02564. The depreciation for a full year is $2,564 ($100,000 × 0.02564). Under the mid-month convention, you treat the property as placed in service in the middle of January. You get 11.5 months of depreciation for the year. Expressed as a decimal, the fraction of 11.5 months divided by 12 months is 0.958. Your first-year depreciation for the building is $2,456 ($2,564 × 0.958).

You subtract $2,456 from $100,000 to get your adjusted basis of $97,544 for the second year. The SL rate is 0.02629. This is 1 divided by the remaining recovery period of 38.042 years (39 years reduced by 11.5 months or 0.958). Your depreciation for the building for the second year is $2,564 ($97,544 × 0.02629).

The adjusted basis is $94,980 ($97,544 − $2,564). The SL rate is 0.027 (1 divided by 37.042 remaining years). Your depreciation for the third year is $2,564 ($94,980 × 0.027).

Example 3—200% DB method and mid-quarter convention.

During the year, you bought and placed in service in your business the following items.

Item

Month Placed
in Service

Cost

Safe
January
$4,000
Office furniture
September
1,000
Computer
October
5,000

You do not elect a section 179 deduction and these items do not qualify for a special depreciation allowance. You use GDS and the 200% DB method to figure the depreciation. The total bases of all property you placed in service this year is $10,000. The basis of the computer ($5,000) is more than 40% of the total bases of all property placed in service during the year ($10,000), so you must use the mid-quarter convention. This convention applies to all three items of property. The safe and office furniture are 7-year property and the computer is 5-year property.

The 200% DB rate for 7-year property is .28571. You determine this by dividing 2.00 (200%) by 7 years. The depreciation for the safe for a full year is $1,143 ($4,000 × 0.28571). You placed the safe in service in the first quarter of your tax year, so you multiply $1,143 by 87.5% (the mid-quarter percentage for the first quarter). The result, $1,000, is your deduction for depreciation on the safe for the first year.

For the second year, the adjusted basis of the safe is $3,000. You figure this by subtracting the first year’s depreciation ($1,000) from the basis of the safe ($4,000). Your depreciation deduction for the second year is $857
($3,000 × 0.28571).

The furniture is also 7-year property, so you use the same 200% DB rate of 0.28571. You multiply the basis of the furniture ($1,000) by 0.28571 to get the depreciation of $286 for the full year. You placed the furniture in service in the third quarter of your tax year, so you multiply $286 by 37.5% (the mid-quarter percentage for the third quarter). The result, $107, is your deduction for depreciation on the furniture for the first year.

For the second year, the adjusted basis of the furniture is $893. You figure this by subtracting the first year’s depreciation ($107) from the basis of the furniture ($1,000). Your depreciation for the second year is $255 ($893 × 0.28571).

The 200% DB rate for 5-year property is 0.40. You determine this by dividing 2.00 (200%) by 5 years. The depreciation for the computer for a full year is $2,000 ($5,000 × 0.40). You placed the computer in service in the fourth quarter of your tax year, so you multiply the $2,000 by 12.5% (the mid-quarter percentage for the fourth quarter). The result, $250, is your deduction for depreciation on the computer for the first year.

For the second year, the adjusted basis of the computer is $4,750. You figure this by subtracting the first year’s depreciation ($250) from the basis of the computer ($5,000). Your depreciation deduction for the second year is $1,900 ($4,750 × 0.40).

Example 4—200% DB method and half-year convention.

Last year, in July, you bought and placed in service in your business a new item of 7-year property. This was the only item of property you placed in service last year. The property cost $39,000 and you elected a $24,000 section 179 deduction. You also made an election under section 168(k)(7) not to deduct the special depreciation allowance for 7-year property placed in service last year. Your unadjusted basis for the property is $15,000. Because you did not place any property in service in the last 3 months of your tax year, you used the half-year convention. You figured your deduction using the percentages in Table A-1 for 7-year property. Last year, your depreciation was $2,144 ($15,000 × 14.29%).

In July of this year, your property was vandalized. You had a deductible casualty loss of $3,000. You spent $3,500 to put the property back in operational order. Your adjusted basis at the end of this year is $13,356. You figured this by first subtracting the first year’s depreciation ($2,144) and the casualty loss ($3,000) from the unadjusted basis of $15,000. To this amount ($9,856), you then added the $3,500 repair cost.

You cannot use the table percentages to figure your depreciation for this property for this year because of the adjustments to basis. You must figure the deduction yourself. You determine the DB rate by dividing 2.00 (200%) by 7 years. The result is 0.28571 or 28.571%. You multiply the adjusted basis of your property ($13,356) by the DB rate of 0.28571 to get your depreciation deduction of $3,816 for this year.

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Depreciation | How to Calculate Straight Line \u0026 Reducing Balance Depreciation


This video will help you understand how to calculate depreciation. The video explains how to calculate both the straight line method and reducing balance method of calculating depreciation.
Each method has clear examples and if you want to apply your new found knowledge of depreciation then download the activity worksheet here: https://www.tes.com/teachingresource/howtocalculatedepreciationworksheetandvideo12276857
Depreciation is how much the value of an asset falls over a period of time. In order to record this expense to a business on an income statement you can use either one of these two key methods.
Firstly is the STRAIGHT LINE METHOD and secondly the REDUCING BALANCE Method. Each method enables the business to record the value lost of an asset in the expenses section of an income statement. This is an important expense to consider for a business as it can be costly if it is not monitored.
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Depreciation | How to Calculate Straight Line \u0026 Reducing Balance Depreciation

STRAIGHT LINE Method of Depreciation in 3 Steps!


💥Depreciation Cheat Sheet → https://accountingstuff.com/shop
In this video you’ll learn how to use the Straight Line Depreciation Method in Accounting. This is the simplest way to depreciate Tangible Fixed Assets. Others depreciation methods include…
▪ Straight Line Depreciation Method → https://youtu.be/iruD9KTNnNc
▪ DoubleDeclining Balance Method → https://youtu.be/MVzJ51zZoM
▪ Sum of the Year’s Digits Method → https://youtu.be/Q03t8vuRMwo
▪ Units of Production Method → https://youtu.be/QJk6DgML0BQ
You’ll find out what depreciation means and how it applies to NonCurrent Assets on a farm. Then we’ll cover a full worked example where you’ll learn how to apply the Straight Line Method in three simple steps. This episode of Accounting Stuff is part of a miniseries on Depreciation in Accounting. You can find the link to the whole playlist here ⬇️
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00:00 Intro
00:11 What is Depreciation?
00:22 What is Straight Line Depreciation?
00:35 Example
01:20 Step 1: Write Down What You Know
01:46 Step 2: Build a Depreciation Schedule
02:34 Step 3: Calculate the Depreciation Expense, Accumulated Depreciation \u0026 Book Values
03:13 How to Calculate Straight Line Depreciation Expense
05:52 Straight Line Depreciation Graph
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STRAIGHT LINE Method of Depreciation in 3 Steps!

Calculating Depreciation


Depreciation is the method by which the cost of a fall in value of fixed assets is recognised in the financial accounts of a business. This short revision video explains the two main methods of calculating depreciation.
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Calculating Depreciation

Depreciation in Financial Accounting


This video explains what depreciation is from a conceptual point of view and then illustrates why we depreciate certain types of assets.

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Depreciation in Financial Accounting

Amortization and depreciation | Finance \u0026 Capital Markets | Khan Academy


Comparing depreciation and amortization. Created by Sal Khan.

Missed the previous lesson? Watch here: https://www.khanacademy.org/economicsfinancedomain/corefinance/accountingandfinancialstateme/depreciationamortizationtut/v/depreciationincashflow?utm_source=YT\u0026utm_medium=Desc\u0026utm_campaign=financeandcapitalmarkets

Finance and capital markets on Khan Academy: How do you account for things that get \”used up\” or a cost that should be spread over time. This tutorial has your answer. Depreciation and amortization might sound fancy, but you’ll hopefully find them to be quite understandable.

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Amortization and depreciation | Finance \u0026 Capital Markets | Khan Academy

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