42.5 MACRS Rates

The MACRS rate under the general depreciation system depends on the recovery period (42.4) for the property and whether the half-year or mid-quarter convention applies. The 200% declining balance rate applies to three-year property, five-year property, and seven-year property. See 42.8 for the 150% declining balance rate election. These rates are adjusted for the convention rules explained below. When the 200% declining balance rate provides a lower annual deduction than the straight-line rate, the 200% declining balance rate is replaced by the straight-line rate. The rates in the tables at the end of this section incorporate the applicable convention and the change from the 200% declining balance rate to a straight-line recovery. MACRS straight-line rates are discussed later in this Chapter (42.9).

Conventions.

Under the half-year convention, all property acquired during the year, regardless of when acquired during the year, is treated as acquired in the middle of the year. As a result, only one-half of the full first-year depreciation is deductible and in the year after the last class life year, the balance of the depreciation is written off. Furthermore, in the year property is sold, only half of the full depreciation for that year is deductible (42.6).

The half-year convention applies unless the total cost bases of depreciable assets placed in service during the last three months of the taxable year exceed 40% of the total bases of all property placed in service during the entire year. If this 40% test applies, you must use a mid-quarter convention to figure your annual depreciation deduction (42.7).

Buildings are depreciated using a mid-month convention (42.13).

Depreciation tables.

The following table provides year-by-year rates for property in the three, five-, and seven-year classes. The rates incorporate the adjustment for the half-year or mid-quarter convention and the switch from the 200% declining balance rate to the straight-line method. Use the rate shown in the table under the convention for your asset. The rate is applied to original basis, minus any first-year expensing deduction (42.3) and bonus depreciation you claimed for eligible property placed in service before 2013. After applying the rate from the table to the basis, you claim the deduction on Form 4562, Part III, Section B, labeled “General Depreciation System” (GDS).

You use the tables for the entire recovery period unless you claim a deductible casualty loss that reduces your basis in the property. For the year of the casualty loss and later years, depreciation must be based on the adjusted basis of the property at the end of the year. The tables may no longer be used; see IRS Publication 946 for further details.

Table 42-1 MACRS Depreciation Rates