Basis and Depreciation: A Review for Tax Professionals Part VI

Calculating the Depreciation Using GDS –

Once you have determined an asset’s class life, recovery period, and convention it is time to refer to the depreciation tables at the back of your text. If the asset you are calculating depreciation for is not a newly placed asset, you must know the date the asset was placed into service so that you use the appropriate recovery percentage. You will find the depreciation tables in IRS Pub 946 starting on page 70, all table references are from that publication. (http://www.irs.gov/pub/irs-pdf/p946.pdf) Table A-1 will be used for all GDS HY convention property.

For Example: Using table A-1, if a piece of 5 year property was placed into service in 2012 then 2014 would be it”s third year of life (2012, 2013, and 2014) and would be depreciated using 19.2%. If the same piece of property had actually been placed in service in 2013, then you would use the second year of life at 32% instead.

If I was using the MQ convention, using the example in the previous section and assuming that all of these pieces of property were placed into service in 2014, I would use the tables as follows:

For the piece placed into service in April, I would use Table A-3, 1st year, 20%.

For the piece placed in service in August, I would use Table A-4, 1st year, 15%.

For the piece placed in service in November, I would use Table A-5, 1st year, 5%.

Tables A-2 through A-5 are used for all GDS MQ property.

If I were depreciating GDS real property using the MM convention, I would use the tables as follows:

For residential rental real estate I would use Table A-6.

For non-residential rental real estate placed in service before 13 May 1993, I would use Table A-7.

For non-residential rental real estate placed in service after 12 May 1993, I would use Table A-7a. (You will notice that this is a straight line method)

Calculating the Depreciation Using ADS

Notice that on all the tables relating to ADS, the depreciation is straight- line. The first year the property is placed into service, there is a partial years deduction and the last year the property is in service there is also a partial years deduction.

If the property is held long enough to be completely depreciated than you will see that the partial first year percentage plus the partial last year percentage add up to the same amount, as is the case with the years in between.

All HY convention property using ADS will use Table A-8.

All MQ convention property using ADS will use Tables A-9 through A-12.

All MM convention property using ADS will use tables A-13 through A-18.

Lastly, special circumstances with depreciation.

In accordance with Circular 230 Disclosure

Anything and everything taxes. I also write the Louisiana State book to go to our new Income Tax Course learners and the state-wide training for upper level Tax Professionals. I am an Instructor of all levels of tax related classes. I love to teach and write as well as taking the absolute best care of my clients all year round.

26 years in Law Enforcement (13 in the Air Force and 13 at the Bossier City PD), 20 years doing income taxes professionally.
My goals now are to spend many years being my 3 grandchildren’s MeeMaw, taking the absolute best care of my clients, and continually learning new things.
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The postings made on this site are my own and do not necessarily represent HR Block’s positions, strategies or opinions.

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