Depreciation Methods and Calculation Rules

The Modified Accelerated Cost Recovery System, or MACRS,
is the most common method used to determine depreciation
deductions.  MACRS has special calculation rules used to
determine your deduction for the first year that property is
placed into service.


 

MACRS Methods
There are three methods to determine depreciation.  The
depreciation method you use depends on the type of property and
when it was placed in service.  For property used in rental activities
you use one of the following:
 

  1. MACRS (Modified Accelerated Cost Recovery System) for
    property placed in service after 1986.
     
  2. ACRS (Accelerated Cost Recovery System) for property
    placed in service after 1980 but before 1987.
     
  3. Useful lives and either straight line or an accelerated
    method of depreciation, such as the declining balance
    method, for property placed in service before 1981.

The focus of this site is on MACRS because it is the
depreciation method most people will use.  To learn more about
ACRS, read IRS publication 534. 

Calculation Rules - Conventions
There are special depreciation calculation rules for the first and
last years in which the property is placed in service.  You are
required to use a specific "convention", based on the type of
property you are depreciating.  The convention you use determines
the number of months for which you can claim depreciation in the
year you place property in service and in the year you dispose of
the property.  The convention types include:

Under MACRS, averaging conventions establish when the recovery
period begins and ends.  The convention you use determines the
number of months for which you can claim depreciation in the year
you place property in service and in the year you dispose of the
property. 


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