Using the MACRS Percentage Tables
To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. These percentage tables are in Appendix A near the end of this publication.
The following rules cover the use of the percentage tables.
You must apply the rates in the percentage tables to your property's unadjusted basis.
You cannot use the percentage tables for a short tax year. See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules.
Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property.
You must stop using the tables if you adjust the basis of the property for any reason other than—
Depreciation allowed or allowable, or
An addition or improvement to that property that is depreciated as a separate item of property.
Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss.
On October 26, 2010, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business in the GO Zone a new item of 7-year property. It cost $39,000 and she elected a section 179 deduction of $24,000. She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 − $24,000)]. Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 − $7,500). She figured her MACRS depreciation deduction using the percentage tables. For 2010, her MACRS depreciation deduction was $268.
In July 2011, the property was vandalized and Sandra had a deductible casualty loss of $3,000. She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Her adjusted basis at the end of 2011, before figuring her 2011 depreciation, is $4,232. She figures that amount by subtracting the 2010 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. She must now figure her depreciation for 2011 without using the percentage tables.
You must apply the table rates to your property's unadjusted basis each year of the recovery period. Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. However, you do reduce your original basis by other amounts, including the following.
Any amortization taken on the property.
Any section 179 deduction claimed.
Any special depreciation allowance taken on the property.
For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments.
You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Use a separate worksheet for each item of property. Then, use the information from this worksheet to prepare Form 4562.
|1.||MACRS system (GDS or ADS)|
|3.||Date placed in service|
|5.||Method and convention|
|6.||Depreciation rate (from tables)|
|7.||Cost or other basis*||$|
|9.||Multiply line 7 by line 8||$|
|10.||Total claimed for section 179 deduction and other items||$|
|11.||Subtract line 10 from line 9. This is your tentative basis for depreciation||$|
|12.||Multiply line 11 by .50 if the 50% special depreciation allowance applies. Multiply line 11 by 1.00 if the 100% special depreciation allowance applies. This is your special depreciation allowance. Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance||$|
|13.||Subtract line 12 from line 11. This is your basis for depreciation|
|14.||Depreciation rate (from line 6)|
|15.||Multiply line 13 by line 14. This is your MACRS depreciation deduction||$|
|*If real estate, do not include cost (basis) of land.|
The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet.
You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2011. You use the furniture only for business. This is the only property you placed in service this year. You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. You use GDS and the half-year convention to figure your depreciation. You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. You figure your depreciation deduction using the MACRS worksheet as follows.
|1.||MACRS system (GDS or ADS)||GDS|
|3.||Date placed in service||8/11/11|
|5.||Method and convention||200%DB/Half-Year|
|6.||Depreciation rate (from tables)||.1429|
|7.||Cost or other basis*||$10,000|
|9.||Multiply line 7 by line 8||$10,000|
|10.||Total claimed for section 179 deduction and other items||-0-|
|11.||Subtract line 10 from line 9. This is your tentative basis for depreciation||$10,000|
|12.||Multiply line 11 by .50 if the 50% special depreciation allowance applies. Multiply line 11 by 1.00 if the 100% special depreciation allowance applies. This is your special depreciation allowance. Enter -0- if this is not the year you placed the property in service, the property is not qualified property, or you elected not to claim a special allowance||-0-|
|13.||Subtract line 12 from line 11. This is your basis for depreciation||$10,000|
|14.||Depreciation rate (from line 6)||.1429|
|15.||Multiply line 13 by line 14. This is your MACRS depreciation deduction||$1,429|
|*If real estate, do not include cost (basis) of land.|
If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows.
The following examples are provided to show you how to use the percentage tables. In both examples, assume the following.
You use the property only for business.
You use the calendar year as your tax year.
You use GDS for all the properties.
You bought a building and land for $120,000 and placed it in service on March 8. The sales contract showed that the building cost $100,000 and the land cost $20,000. It is nonresidential real property. The building's unadjusted basis is its original cost, $100,000.
You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. Your depreciation deduction for each of the first 3 years is as follows:
During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. You placed the machine in service in January, the furniture in September, and the computer in October. You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance.
You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. The total bases of all property you placed in service during the year is $10,000. The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Therefore, you must use the mid-quarter convention for all three items.
You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. The machine is 7-year property placed in service in the first quarter, so you use Table A-2. The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-5. Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows.
If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property.
On December 2, 2008, you placed in service an item of 5-year property costing $10,000. You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Your unadjusted basis for the property was $10,000. You used the mid-quarter convention because this was the only item of business property you placed in service in 2008 and it was placed in service during the last 3 months of your tax year. Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Your deductions for 2008, 2009, and 2010 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22.80% of $10,000). You disposed of the property on April 6, 2011. To determine your depreciation deduction for 2011, first figure the deduction for the full year. This is $1,368 (13.68% of $10,000). April is in the second quarter of the year, so you multiply $1,368 by 37.5% to get your depreciation deduction of $513 for 2011.
On July 2, 2009, you purchased and placed in service residential rental property. The property cost $100,000, not including the cost of land. You used Table A-6 to figure your MACRS depreciation for this property. You sold the property on March 2, 2011. You file your tax return based on the calendar year.
A full year of depreciation for 2011 is $3,636. This is $100,000 multiplied by .03636 (the percentage for the seventh month of the third recovery year) from Table A-6. You then apply the mid-month convention for the 2½ months of use in 2011. Treat the month of disposition as one-half month of use. Multiply $3,636 by the fraction, 2.5 over 12, to get your 2011 depreciation deduction of $757.50.