How To Figure the Deduction Using Percentage Tables Once you determine that your property can be depreciated underMACRS and whether it falls under GDS or ADS, you are ready to figureyour deduction. To help you figure your deduction, the IRS hasestablished percentage tables. To use these percentage tables tofigure your MACRS deduction each year, you need to know the followinginformation about your property. Its basis. Its property class and recovery period. The date it was placed in service. Which convention to use. Which depreciation method to use. Basis Words you may need to know (see Glossary): Abstract fees Adjusted basis Basis Business/investment use Fair market value (FMV) Nontaxable exchange Taxable exchange To figure your depreciation deduction, you must determine the basisof your property. To determine basis, you need to know the cost orother basis of your property. If you bought the property, your basisis the amount you paid for the property plus amounts you paid foritems such as sales tax, freight charges, and installation and testingfees. "Other basis" refers to basis that is determined by the wayyou received the property. For example, you may have received theproperty through an exchange, for services you performed, as a gift,or as an inheritance. If you received property in this or some otherway, see Publication 551to determine your basis. Cost as Basis The basis for property is generally its cost. This includes anyamount you pay for the property in cash, in debt obligation, in otherproperty, or in services. Assumed debt.If you buy property and assume the seller's mortgage or other debton the property, your basis includes the amount you assume. Example.You pay a $20,000 down payment for property and assume the seller'smortgage of $120,000. Your total cost is $140,000, the cash you paidplus the mortgage you assumed. Settlement fees and other costs.The basis of real property also includes certain fees and chargesyou pay with the purchase. These fees are generally shown on yoursettlement statement. If you buy real property and agree to pay the real estate taxes theseller owed and the seller did not reimburse you, add the taxes youpay to the basis of your property. Other fees or charges you pay thatyou should add to the basis of your property include the following. Legal and recording fees. Abstract fees. Survey charges. Title insurance. Amounts the seller owed that you pay, such as interest,recording or mortgage fees, and sales commissions. Property you construct or build.If you construct, build, or otherwise produce property for use inyour business, you may have to use the uniform capitalization rules todetermine the basis of your property. For information about theuniform capitalization rules, see Publication 551. Adjusted Basis You may have to make certain adjustments (increases and decreases)to the basis of property for events occurring between the time youacquired the property and the time you placed it in service. Theseevents could include the following. Installation of utility lines. Legal fees for perfecting the title. Settlement of zoning issues. Removal of barriers. Receiving rebates. For a discussion of adjustments to the basis of your property,see Adjusted Basis in Publication 551. Property Changedfrom Personal Use If you held property for personal use and later change it tobusiness use or use in the production of income, your basis is thelesser of the following. The fair market value (FMV) of the property on the date youchange it from personal use. Your original cost or other basis adjusted as follows. Increased by the cost of any permanent improvements oradditions and other costs that must be added to basis. Decreased by any tax deductions you claimed for casualty andtheft losses and other items that reduced your basis. Example.Several years ago Nia paid $160,000 to have her home built on a lotthat cost her $10,000. Before changing the property to rental use lastyear, she paid $20,000 for permanent improvements to the house andclaimed a $2,000 casualty loss deduction for damage to the house.Because land is not depreciable, she can only include the cost of thehouse when figuring the basis for depreciation. Nia's adjusted basis in the house when she changed it to businessuse was $178,000 ($160,000 + $20,000 - $2,000). On the same dateher property had an FMV of $180,000, of which $30,000 was for the landand $150,000 was for the house. The basis for depreciation on thehouse is the FMV ($150,000), because it is less than her adjustedbasis ($178,000). Use of Property If you use an item of property for more than one purpose, you mustdetermine how much of your use of the property is for each of thefollowing. Business use Investment use Personal use Combine investment use with business use to figure yourdepreciation deductions. Do not consider investment use, however, whendetermining whether listed property is used predominantly in aqualified business use. Listed property and the predominant use testare discussed in chapter 4. Property Classes andRecovery Periods Words you may need to know (see Glossary): Basis Class life Placed in service Property class Recovery period Section 1250 property Straight line method Under MACRS, property is assigned to one of several propertyclasses. These property classes establish the recovery periods (numberof years) over which you recover the basis of your property. The classyour property is assigned to is generally determined by its classlife. For example, property with a class life of 4 years or less is inthe 3-year property class. The complete list of class lives andrecovery periods is in the Table of Class Lives and RecoveryPeriods in Appendix B. GDS Under GDS, most tangible property is assigned to one of eight mainproperty classes. The following is a list of the eight propertyclasses with examples of the property included in each. 3-year property. This class includes thefollowing. Tractor units for over-the-road use. Any race horse over 2 years old when placed inservice. Any other horse over 12 years old when placed inservice. Qualified rent-to-own property. 5-year property. This class includes thefollowing. Automobiles, taxis, buses, and trucks. Computers and peripheral equipment. Office machinery (such as typewriters, calculators, andcopiers). Any property used in research and experimentation. Breeding cattle and dairy cattle. 7-year property. This class includes thefollowing. Office furniture and fixtures (such as desks, files, andsafes). Any property that does not have a class life and that hasnot been designated by law as being in any other class. 10-year property. This class includes thefollowing. Vessels, barges, tugs, and similar water transportationequipment. Any single purpose agricultural or horticulturalstructure. Any tree or vine bearing fruits or nuts. 15-year property. This class includes thefollowing. Certain depreciable improvements made directly to land oradded to it (such as shrubbery, fences, roads, and bridges). Service station buildings and other land improvements usedin the marketing of petroleum and petroleum products (but notfacilities related to petroleum and natural gas trunkpipelines). 20-year property. This class includes farmbuildings (other than single purpose agricultural or horticulturalstructures). Residential rental property. This class includesreal property such as a rental home or structure (including a mobilehome) if 80% or more of its gross rental income for the tax year isfrom dwelling units. A dwelling unit is a house or apartment used toprovide living accommodations in a building or structure. It does notinclude a unit in a hotel, motel, inn, or other establishment wheremore than half the units are used on a transient basis. If you occupyany part of the building or structure for personal use, its grossrental income includes the fair rental value of the part you occupy.The recovery period for this property is 27.5 years. Nonresidential real property. This class includessection 1250 property that is neither of the following. Residential rental property (defined in (7)). Property with a class life of less than 27.5 years. The recovery period for nonresidential real property is: 39 years for property you placed in service afterMay 12, 1993, or 31.5 years for property you placed in service beforeMay 13, 1993. However, property you placed in service before January 1, 1994,will not be subject to the longer recovery period if you or a"qualified person" entered into a binding written contract topurchase or construct the property before May 13, 1993, or you (or aqualified person) began construction of the property before May 13,1993. A qualified person is anyone who transfers a contractor property to you so long as the property was not placed in serviceby the transferor. Office in the home.If you begin to use part of your home as an office after 1986,depreciate that part of your home as nonresidential real property over39 years (31.5 years for property you placed in service beforeMay 13, 1993) under GDS. See Publication 587for a discussion ofthe tests you must meet to claim expenses, including depreciation, forthe business use of your home. Rent-to-own property.You can depreciate qualified rent-to-own property under GDS.Depreciate it over 3 years if you placed it in service after August 5,1997. Depreciate it over 5 years if you placed it in servicebefore August 6, 1997. Qualified rent-to-own property isproperty held by a rent-to-own dealer for purposes of being subject toa rent-to-own contract. Rent-to-own dealer.A person who, in the ordinary course of business, regularly entersinto rent-to-own contracts is a rent-to-own dealer if a substantialportion of the contracts end with the customer returning the propertybefore the dealer receives all of the payments required to transferownership to the customer. The contracts must be for the use ofconsumer property, that is, tangible personal property of a typegenerally used within the home for personal use. Rent-to-own contract.This is any lease for the use of consumer property between arent-to-own dealer and a customer who is an individual. The leasecontract must meet all of the following rules. Must be titled "Rent-to-Own Agreement," "LeaseAgreement with Ownership Option," or other similar language. Provide a beginning date and a maximum period of time not toexceed 156 weeks or 36 months from the beginning date, for which thecontract can be in effect (including renewals or options toextend). Provide for regular periodic weekly or monthly payments thatcan be either level or decreasing. If the payments are decreasing, nopayment can be less than 40 percent of the largest payment. Provide for total payments to generally exceed the normalretail price of the property plus interest. Provide for total payments that do not exceed $10,000 foreach item of property. Provide that the customer has no legal obligation to makeall payments outlined in the contract and that at the end of eachweekly or monthly payment period, the customer can either continue touse the property by making the next payment or return the property ingood working order and be free of any further obligations and notentitled to a return of any prior payments. Provide that legal title to the property remains with therent-to-own dealer until the customer makes either all the requiredpayments or the early purchase payments required under the contract toacquire legal title. Provide that the customer has no right to sell, sublease,mortgage, pawn, pledge, or otherwise dispose of the property until allcontract payments have been made. Qualified rent-to-own property.This is tangible personal property generally used in the home forpersonal use. It includes computers and peripheral equipment,televisions, videocassette recorders, stereos, camcorders, appliances,furniture, washing machines and dryers, refrigerators, and othersimilar consumer durable property. Consumer durable property does notinclude real property, aircraft, boats, motor vehicles, or trailers. If some of the property you rent to others under a rent-to-ownagreement is of a type that may be used by the renters for eitherpersonal or business purposes, you can still treat this property asqualified property as long as it does not represent a significantportion of your leasing property. But, if this dual-use property doesrepresent a significant portion of your leasing property, you mustprove that this property is qualified rent-to-own property. Water utility property.Depreciate water utility property you place in service after June12, 1996 (unless you place it in service under a binding contract ineffect before June 10, 1996, and at all times until you place theproperty in service), using the straight line method over a 25-yearrecovery period. Water utility property is either of the following. Property that is an integral part of the gathering,treatment, or commercial distribution of water, and that, withoutregard to this provision, would have a 20-year recovery period. Any municipal sewer. Gas station convenience stores (retail motor fuels outlet).Depreciable real property that is a retail motor fuels outlet(whether or not it sells food or other convenience items) placed inservice after August 19, 1996, is 15-year property. If you placed theproperty in service before August 20, 1996, you could have chosen totreat it as 15-year property. Retail motor fuels outlet.Real property is a retail motor fuels outlet if it is used to asubstantial extent in the retail marketing of petroleum or petroleumproducts and it meets any one of the following three tests. It is not larger than 1,400 square feet. 50% or more of the gross revenues that are generated fromthe property are derived from petroleum sales. 50% or more of the floor space in the property is devoted topetroleum marketing sales. A retail motor fuels outlet does not include any facilityrelated to petroleum and natural gas trunk pipelines. Personal home changed to rental use.If you begin to rent a home after 1986 that was your personal homebefore 1987, you depreciate it as residential rental property over27.5 years under GDS. Additions or improvements to property.Treat additions or improvements you make to any property, includingleased property, as separate property items for depreciation purposes.The recovery period for an addition or improvement to property beginson the later of the following dates. The date you place the addition or improvement in service. The date you place in service the property to which you madethe addition or improvement. The class and recovery period of the addition or improvement is theone that would apply to the underlying property if you had placed itin service at the same time you placed the addition or improvement inservice. Example.You own a rental home which you have been renting out since 1981.If you put an addition on the home and place the addition in servicethis year, you would use MACRS to figure your depreciation deductionfor the addition. Under GDS, the property class for the addition isresidential rental property and its recovery period is 27.5 yearsbecause the home to which the addition is made would be residentialrental property if you had placed it in service this year. Shorter Recovery Period for Property Used on IndianReservations You can use shorter recovery periods for qualified property thatyou placed in service on an Indian reservation after 1993 and before2004. These recovery periods are discussed later under Recoveryperiods. Qualified property.Property eligible for the shorter recovery periods are 3-, 5-, 7-,10-, 15-, and 20-year property and nonresidential real property. Youmust use this property predominantly in the active conduct of a tradeor business within an Indian reservation. Real property you rent toothers that is located on an Indian reservation is also eligible forthe shorter recovery periods. The following property is not qualified property. Property used or located outside an Indian reservation on aregular basis. Property acquired directly or indirectly from a relatedperson (discussed later). Property placed in service for purposes of conducting orhousing class I, II, or III gaming activities. (These activities aredefined in section 4 of the Indian Regulatory Act (25 U.S.C.2703)). Qualified property does not include any property you mustdepreciate under the Alternative Depreciation System (ADS). Determinewhether property is qualified without regard to the election to useADS and after applying the special rules for listed property not usedpredominantly in a qualified business (discussed in chapter 4). Qualified infrastructure property.Item (1) above does not apply to qualified infrastructure propertylocated outside the reservation that is used to connect with qualifiedinfrastructure property within the reservation. Qualifiedinfrastructure property is property that meets the following rules. It meets the rules stated above under Qualifiedproperty (except that it can be outside the reservation). It benefits the tribal infrastructure. It is available to the general public. It is placed in service in connection with the activeconduct of a trade or business within a reservation. Infrastructure property includes, but is not limited to roads,power lines, water systems, railroad spurs, and communicationsfacilities. Related persons.A related person is either of the following. A person who bears a relationship to you as described in thelist of related persons in chapter 2,except that 10% is substitutedfor 50% each place it appears and related persons also includebrothers and sisters. A person with whom you are engaged in trades or businessesthat are under common control as described in section 52(a) and 52(b)of the Internal Revenue Code. Indian reservation.The term "Indian reservation" means a reservation as definedin section 3(d) of the Indian Financing Act of 1974 (25 U.S.C.1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25U.S.C. 1903(10)). For a definition of the term "former Indianreservations in Oklahoma" as used in section 3(d) of the IndianFinancing Act of 1974, see Notice 98-45 in Internal RevenueBulletin No. 1998-35. The Internal Revenue Bulletin is availableat many libraries and Internal Revenue Service offices. Recovery periods.The following table shows the shorter recovery periods you can usefor qualified property. Recovery Periods for Qualified Indian Reservation Property Property Class Recovery Period 3-year 2 years 5-year 3 years 7-year 4 years 10-year 6 years 15-year 9 years 20-year 12 years Nonresidential real property 22 years ADS As discussed earlier under When To Use ADS, you must useADS for certain property or you can elect to use ADS for property thatqualifies for GDS. This election is discussed later underElection of ADS. If you use ADS, you will recover the costof your property using the straight line method of depreciation. Therecovery periods for most property are generally longer under ADS thanthey are under GDS. The following table shows some of the ADS recoveryperiods. ADS Recovery Periods Property RecoveryPeriod Automobiles and light duty trucks 5 years Computers and peripheral equipment 5 years High technology telephone station equipmentinstalled on customer premises 5 years High technology medical equipment 5 years Personal property with no class life 12 years Single purpose agricultural and horticulturalstructures 15 years Any tree or vine bearing fruit or nuts 20 years Nonresidential real and residential rentalproperty 40 years The ADS recovery periods for many items of property can be found inthe tables in Appendix B. ADS recovery periods for property not listed in Appendix Btables.For all personal property that is not listed in Appendix B and thathas a class life, the recovery period is the class life. Any personalproperty without a class life has a recovery period of 12 years. Forall section 1245 real property not listed in the tables, the recoveryperiod is 40 years. Placed-in-Service Date As discussed in chapter 1under Placed in Service,depreciation begins when you place your property in service in atrade or business or for the production of income. If you placeproperty in service for personal use, you cannot claim depreciation.If you change the property use to a business or income-producingactivity, you begin to depreciate it at the time of the change in use. Example 1.Donald Steep bought a machine for his business. The machine wasdelivered last year. However, it was not installed and operationaluntil this year. It is considered placed in service this year. If themachine had been ready for use when it was delivered, it would beconsidered placed in service last year even if it was not actuallyused until this year. Example 2.On April 6, Sue Thorn bought a house to use as residential rentalproperty. She made several repairs and had it ready for rent on July5. At that time, she began to advertise it for rent in the localnewspaper. The house is considered placed in service in July when itwas ready and available for rent. She can begin to depreciate it inJuly. Example 3.James Elm is a building contractor who specializes in constructingoffice buildings. He bought a truck last year that had to be modifiedto lift materials to second-story levels. The installation of thelifting equipment was completed and James accepted delivery of themodified truck on January 10 of this year. The truck was placed inservice on January 10, the date it was ready and available to performthe function for which it was bought. Conventions Words you may need to know (see Glossary): Basis Clean-fuel vehicle Clean-fuel vehicle refueling property Disposed Nonresidential real property Placed in service Residential rental property To figure your depreciation deduction for both the year in whichyou place property in service and the year in which you dispose of theproperty, you use one of the following conventions. The half-year convention. The mid-month convention. The mid-quarter convention. The Half-Year Convention Generally, you use the half-year convention for property other thannonresidential real and residential rental property. In certaincircumstances, you may have to use the mid-quarter convention(discussed later). Under the half-year convention, you treat allproperty placed in service or disposed of during a tax year as placedin service or disposed of at the midpoint of the year. This means thatno matter when in the year you begin or end the use of the property,you treat it as if you began or ended its use in the middle of theyear. The Mid-Month Convention You use the mid-month convention for the following types ofproperty. Nonresidential real property. Residential rental property. Under this convention, you treat all property placed in serviceor disposed of during a month as placed in service or disposed of atthe midpoint of the month. This means that no matter when during amonth you place property in service or dispose of it, you treat it asbeing placed in service or disposed of in the middle of the month. The Mid-Quarter Convention Under the mid-quarter convention, you treat all property placed inservice or disposed of during a tax year as placed in service ordisposed of at the midpoint of the quarter. This means that no matterwhen during a quarter you place property in service or dispose of it,you treat it as being placed in service or disposed of in the middleof the quarter. You must use the mid-quarter convention when the total depreciablebases of MACRS property you placed in service during the last threemonths of your tax year are more than 40% of the total depreciablebases of all MACRS property you placed in service during the entireyear. When that happens, you must use this convention for all MACRSproperty you placed in service during the year. To determine the totalbases of property, do not include the following. Nonresidential real property. Residential rental property. Property you placed in service and disposed of in the sameyear. To determine whether you must use the mid-quarter convention, thedepreciable basis of property is your basis multiplied by thepercentage of business/investment use and then reduced by thefollowing. The amount of amortization taken on the property. Any section 179 deduction claimed on the property. Any deduction claimed for clean-fuel vehicles or forclean-fuel vehicle refueling property. Depreciation Methods Words you may need to know (see Glossary): Declining balance method Listed property Nonresidential real property Placed in service Property class Recovery period Residential rental property Straight line method The depreciation method you use depends on whether you use GDS orADS, which class your property is in, and what type of property it is. GDS uses different declining balance rates and the straight linemethod depending on the property class, the way the property is used,and the election you make. The GDS recovery periods for most classesof property are generally shorter than the ADS recovery periods. You are required to use ADS for certain property. However, if yourproperty comes under GDS, you can elect to use ADS. Under ADS, you usethe straight line method of depreciation over generally longerrecovery periods. As discussed later under Predominant Use Test in chapter 4,you may have to use the straight line method for certain listedproperty. This does not mean you have to use this method for otherdepreciable property in the same class that you placed in service inthe same year. You can find the GDS and ADS recovery periods for most classes ofproperty in the Table of Class Lives and Recovery Periodsin Appendix B. Under MACRS, there are four methods you can use to figuredepreciation. The following table lists the types of property you candepreciate under each method. It also gives a brief explanation of themethod. You can use this table to help you determine the method to usefor a specific property class. The declining balance method isabbreviated as DB and the straight line method is abbreviated as SL. Depreciation Methods Method Type of Property Benefit 200% DB using GDS Nonfarm 3-, 5-, 7-, and10-year property Provides a greater deduction during the earlierrecovery years. Changes to SL when that method provides a greaterdeduction. 150% DB using GDS All farm property (except realproperty) Provides a greater deduction during the All 15- and 20-year property earlier recovery years. Nonfarm 3-, 5-, 7-, and10-year property* Changes to SL when that method provides a greaterdeduction. SL using Nonresidential real property Provides for equal GDS Residential rental property yearly deductions Trees or vines bearing fruit ornuts (except for the first and last years). All 3-, 5-, 7-, 10-, 15-, and20-year property* SL using ADS Property used predominantlyoutside the U.S. Provides for equal yearly deductions. Tax-exempt property Tax-exempt bond-financedproperty Imported property** Any property for which youelect to use this method* * Elective method **See section 168(g)(6) of the Internal RevenueCode. TaxTip: If you use the MACRS percentage tables discussed later underMACRS Percentage Tables, you do not need to determine theyear in which your deduction is greater using the straight linemethod. The tables have the switch to the straight line method builtinto their rates. Electing a Method As shown in the table Depreciation Methods, you canelect a different method for depreciation for certain types ofproperty. You must make the election by the due date of the return(including extensions) for the year you placed the property inservice. However, if you timely filed your return for the year withoutmaking the election, you can still make the election by filing anamended return within six months of the due date of the return(excluding extensions). Attach the election to the amended return andwrite "Filed pursuant to section 301.9100-2" on theelection statement. File the amended return at the same address youfiled the original return. Once you make the election, you cannotchange it. Caution: If you elect to use a different method for one item in a propertyclass you must apply the same method to all property in that classplaced in service in the year of the election. However, you can makethe election on a property-by-property basis for nonresidential realand residential rental property. 150% election.Instead of using the 200% declining balance method over the GDSrecovery period for nonfarm property in the 3-, 5-, 7-, and 10-yearproperty classes, you can elect to use the 150% declining balancemethod. Make the election by entering "150 DB" in column (f) ofPart II of Form 4562. Caution: For property placed in service before 1999, you could have electedto use the 150% declining balance method using the ADS recoveryperiods. If you made this election, continue to use the same methodand recovery period for that property. Straight line election.Instead of using either the 200% or 150% declining balance methodsover the GDS recovery period, you can elect to use the straight linemethod over the GDS recovery period. Election of ADS.Although your property may come under GDS, you can elect to useADS. ADS uses the straight line method of depreciation over fixed ADSrecovery periods. Make the election by completing line 16 of Part II of Form 4562. Farm property.Instead of using the 150% declining balance rate over a GDSrecovery period for property you use in a farming business, you canelect to depreciate it using either of the following methods. The straight line method over a GDS recovery period. The straight line method over the ADS recovery period. Depreciation Methods for Farm Property If you place personal property in service in a farming businessafter 1988, you can depreciate it under GDS using any method otherthan the 200% declining balance method. You can depreciate realproperty using the straight line method under either GDS or ADS. For a quick reference to the MACRS methods, see the tableDepreciation Methods, earlier. Farming business.A farming business is any trade or business involving cultivatingland or raising or harvesting any agricultural or horticulturalcommodity. A farming business includes the following. Operating a nursery or sod farm. Raising or harvesting crops. Raising or harvesting trees bearing fruit, nuts, or othercrops. Raising ornamental trees. Raising, shearing, feeding, caring for, training, andmanaging animals. An evergreen tree is not an ornamental tree if it is more than 6years old when it is severed from its roots. Processing.In general, a farming business includes processing activities thatare normally part of the growing, raising, or harvesting ofagricultural products. However, a farming business generally does notinclude the processing of commodities or products beyond thoseactivities that are normally part of the growing, raising, orharvesting of such products. Fruit or nut trees and vines.Depreciate trees and vines bearing fruit or nuts under GDS usingthe straight line method over a recovery period of 10 years. ADS required for some farmers.If you elect not to apply the uniform capitalization rules to anyplant produced in your farming business, you must use ADS. You mustuse ADS for all property you place in service in any year the electionis in effect. See the regulations under section 263A of the InternalRevenue Code for information on the uniform capitalization rules thatapply to farm property. MACRS Percentage Tables Words you may need to know (see Glossary): Adjusted basis Amortization Basis Business/investment use Convention Placed in service Property class Recovery period Appendix A near the end of this publication contains percentagetables you can use to figure your depreciation under MACRS. Rules Covering the Use of the Tables The following rules cover the use of the percentage tables. You must apply the rates in the percentage tables to yourproperty's unadjusted basis. You cannot use the percentage tables for a short taxyear. When using the percentage tables to figure yourdepreciation, you must continue to use them for the entire recoveryperiod unless there are adjustments to the basis of your property forreasons other than the following. Depreciation allowed or allowable. An addition or improvement to that property that isdepreciated as a separate item of property. You cannot continue to use the tables if there is anadjustment to the basis of your property other than for a reasonlisted in (3) above. Figuring unadjusted basis.You must apply the table rates to your property's unadjusted basiseach year of the recovery period. Unadjusted basis is thesame amount you would use to figure gain on a sale, but you figure itwithout taking into account any depreciation taken in earlier years.However, you do reduce your original basis by any of the followingthat apply. The amount of amortization taken on the property. Any section 179 deduction claimed. Any deduction claimed for clean-fuel vehicle or clean-fuelvehicle refueling property. The amount of any electric vehicle credit. (This is thelesser of $4,000 or 10% of the cost of the vehicle, even if the creditis less than that amount.) For business property you purchase during the year, the unadjustedbasis is its cost minus these adjustments. If you trade property, your unadjusted basis in the propertyreceived is the cash paid plus the adjusted basis of the propertytraded minus these adjustments. The deductions for clean-fuel vehicles or clean-fuel vehiclerefueling property and any electric vehicle credit are subject torecapture. If the property is depreciable, and you must recapture partor all of the deduction or credit, you can increase the basis of theproperty by the amount of the deduction or credit recaptured. You canrecover the additional basis over the rest of the recovery periodbeginning with the year of recapture. However, if this occurs, youwill no longer be able to use the percentage tables. Instead, for theyear of adjustment and the remaining recovery period, you must figurethe depreciation using the property's adjusted basis at the end of theyear. To determine your depreciation without the tables, see HowTo Figure the Deduction Without Using the Tables, later. The clean-fuel vehicle and clean-fuel vehicle refueling propertydeductions and the electric vehicle credit are discussed in chapter 15 of Publication 535. Adjustment due to casualty loss.If you reduce the basis of your property because of a casualty, youcannot continue to use the tables. For the year of adjustment and therest of the recovery period, figure the depreciation using theproperty's adjusted basis at the end of the year of adjustment. Example.On October 26, 1998, Sandra Elm bought and placed in service in herbusiness an item of 7-year property. She uses the calendar year as hertax year. This is the only item of property she placed in service in1998. It cost $28,500 and she elected a section 179 deduction of$18,500. Her unadjusted basis after the section 179 deduction is$10,000. Because it was the only item placed in service that year andit was placed in service during the last 3 months of her tax year, sheused the mid-quarter convention. Because the property has a 7-yearrecovery period she figures her deduction using the percentages inTable A-5. For 1998, her depreciation is $357 ($10,000 3.57%). In July 1999, her property was vandalized and Sandra had adeductible casualty loss of $3,000. Because she must adjust herproperty's basis for the casualty loss, she can no longer use thepercentage tables. Her adjusted basis at the end of 1999, beforefiguring her 1999 depreciation, is $6,643. She figures the adjustedbasis by subtracting the 1998 depreciation of $357 and the casualtyloss of $3,000 from the unadjusted basis of $10,000. She can nowfigure her depreciation for 1999 without using the percentage tables. Which Table To Use Appendix A contains the MACRS Percentage Table Guide,which is designed to help you locate the correct percentagetable to use for depreciating your property. The MACRS percentagetables immediately follow the guide. MACRS Worksheet Part I of the MACRS worksheet is used to record information youwill need to figure your MACRS deduction in Part II of the worksheet.This worksheet is intended only to help you and does not replace Form4562. Use the information from this worksheet to prepare Form 4562.Also, use a separate worksheet for each item of property. Caution: Do not use this worksheet for automobiles. Use the Worksheetfor Passenger Automobiles in chapter 4. Pencil:       MACRS Worksheet Part I 1. Description of property            2. Date placed in service            3. MACRS method (GDS or ADS)            4. Property class and recovery period            5. Convention            6. Depreciation rate (from tables)            Part II 7. Cost or other basis* $          8. Business/investment use          % 9. Multiply line 7 by line 8 $          10. Total claimed for section 179 deduction andclean-fuel vehicle refueling property $          11. Subtract line 10 from line 9. This is yourdepreciable (unadjusted) basis $          12. Depreciation rate (from tables)            13. Multiply line 11 by line 12. This is yourdepreciation deduction $          *If real estate, do not include cost (basis) of land. The following example shows you how to figure your MACRSdepreciation deduction using the percentage tables and the MACRSworksheet. Example.You bought office furniture (7-year property) for $10,000 andplaced it in service on August 11, 1999. You use the furniture onlyfor business. You did not elect a section 179 deduction. You use GDSunder MACRS and the half-year convention to figure your depreciation.This is the only property you placed in service this year. You referto the MACRS Percentage Table Guide in Appendix A and findthat you should use Table A-1. Because you did not elect a section 179deduction, your property's unadjusted basis is its cost, $10,000.Multiply your property's unadjusted basis each year by the percentagefor 7-year property given in Table A-1. You figure your depreciationdeduction using the MACRS worksheet as follows. MACRS Worksheet Part I 1. Description of property Office furniture 2. Date placed in service    8/11/99 3. MACRS method (GDS or ADS)       GDS 4. Property class and recovery period    7-Year 5. Convention Half-Year 6. Depreciation rate (from tables)     .1429 Part II 7. Cost or other basis*   $10,000 8. Business/investment use      100% 9. Multiply line 7 by line 8   $10,000 10. Total claimed for section 179 deduction andclean-fuel vehicle refueling property       -0- 11. Subtract line 10 from line 9. This is yourdepreciable (unadjusted) basis   $10,000 12. Depreciation rate (from tables)     .1429 13. Multiply line 11 by line 12. This is yourdepreciation deduction    $1,429 *If real estate, do not include cost (basis) of land. If there are no adjustments to the basis of the property other thandepreciation, your depreciation deduction for each subsequent year ofthe recovery period will be as follows. Year Basis Percentage Deduction 2000 $10,000 24.49% $2,449 2001 10,000 17.49 1,749 2002 10,000 12.49 1,249 2003 10,000 8.93 893 2004 10,000 8.92 892 2005 10,000 8.93 893 2006 10,000 4.46 446 Examples The following examples are provided to show you how to use thepercentage tables. In both examples, assume the following. You use the property only for business. You use the calendar year as your tax year. You use GDS for all of the properties. Example 1.You bought a building and land for $120,000 and placed it inservice on March 8. The sales contract showed the building cost$100,000 and the land cost $20,000. It is nonresidential realproperty. You refer to the MACRS Percentage Table Guide inAppendix A and find that you should use Table A-7a. The building'sunadjusted basis is its original cost, $100,000. As discussed earlier,you can never depreciate land. Because March is the third month of your tax year, multiply thebuilding's unadjusted basis, $100,000, by the percentages for thethird month in Table A-7a. Your depreciation deduction for each of thefirst 3 years is as follows: Year Basis Percentage Deduction 1st $100,000 2.033% $2,033 2nd 100,000 2.564 2,564 3rd 100,000 2.564 2,564 Example 2.During 1999, you bought a machine that is 7-year property for$4,000, office furniture that is 7-year property for $1,000, and acomputer that is 5-year property for $5,000. You placed the machine inservice in January, the furniture in September, and the computer inOctober. You do not elect a section 179 deduction for any of theseitems. Because you placed property in service during the last three monthsof the year, you must first determine if you have to use themid-quarter convention. The total bases of all property you placed inservice in 1999 is $10,000. Because the basis of the computer($5,000), which you placed in service during the last 3 months (thefourth quarter) of your tax year, is more than 40% of the total basesof all property ($10,000) you placed in service during 1999, you mustuse the mid-quarter convention for all three items. You refer to the MACRS Percentage Table Guide inAppendix A to determine which table you should use under themid-quarter convention. Because the machine is 7-year property placedin service in the first quarter, you use Table A-2. Because thefurniture is 7-year property placed in service in the third quarter,you use Table A-4. Finally, because the computer is 5-year propertyplaced in service in the fourth quarter, you use Table A-5. Knowingwhat table to use for each property, you figure the depreciation forthe first 2 years as follows. Unadjusted Depreciation Year Property Item Basis Percentage Deduction 1999 Machine $4,000 25.00 $1,000 2000 Machine 4,000 21.43 857 1999 Furniture 1,000 10.71 107 2000 Furniture 1,000 25.51 255 1999 Computer 5,000 5.00 250 2000 Computer 5,000 38.00 1,900