J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

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 ...