MACRS Defined Words you may need to know (see Glossary): Basis Class lives Convention Declining balance method Disposed Nonresidential real property Placed in service Property class Recovery period Residential rental property Straight line method MACRS consists of two systems that determine how you depreciateyour property. The main system is called the General DepreciationSystem (GDS) and the second system is called theAlternative Depreciation System (ADS). The main differencebetween the two systems is that ADS generally provides for a longerrecovery period and uses only the straight line method of depreciationto figure a deduction. Unless you are specifically required by law touse ADS or you elect it, you generally use GDS to figure yourdepreciation deduction. Property for which you are required by law touse ADS and how to elect ADS are discussed later under What CanBe Depreciated Under MACRS. Both GDS and ADS have pre-established class lives for mostproperty. Under GDS, most property is assigned to eight propertyclasses based on these class lives. These property classes provide therecovery period (number of years) over which you recover the cost ofan item in a class. Property classes and recovery periods arediscussed later under How To Figure the Deduction UsingPercentage Tables. Both systems simplify the way you figure your deduction byproviding three preset conventions. These conventions determine thenumber of months for which you claim depreciation in the year youplace property in service and in the year you dispose of the property.The conventions are as follows. Mid-month convention -- Use this convention for allnonresidential real property and residential rental property. Mid-quarter convention -- Use this convention if thebasis of property placed in service during the last three months ofthe tax year (excluding nonresidential real property, residentialrental property, and property placed in service and disposed of in thesame year) is more than 40% of the total bases of all property placedin service for the entire year. Half-year convention -- Use this convention for allother property. These conventions are discussed later under How To Figure theDeduction Using Percentage Tables. MACRS provides four methods of figuring depreciation on property. The 200% declining balance method over a GDS recoveryperiod. The 150% declining balance method over a GDS recoveryperiod. The straight line method over a GDS recovery period. Schwechat luxury hotelsThe straight line method over an ADS recovery period. You can elect to use ADS for property that qualifies for GDS. These depreciation methods are discussed later underDepreciation Methods. Caution: For property placed in service before 1999, you could have electedthe 150% declining balance method using the ADS recovery periods forcertain property classes. If you made this election, continue to usethe same method and recovery period for that property.