How To Figure the Deduction Without Using the Tables Instead of using the rates in the percentage tables to figuredepreciation, you can compute the depreciation deduction each yearyourself. Caution: Figuring MACRS deductions without using the tables will generallyresult in a slightly different amount than using the tables. Declining Balance Method When using a declining balance method, you must apply theappropriate convention and you must switch to the straight line methodin the first year for which it will give an equal or greaterdeduction. The conventions are explained later under Applying theConvention. The straight line method is explained later underStraight Line Method. You figure depreciation for the year you place property in serviceas follows. Multiply your adjusted basis in the property by thedeclining balance rate (explained later). Apply the appropriate convention. If you dispose of property before the end of its recovery period,see Early Dispositions, later, for information on how tofigure depreciation for the year you dispose of it. You figure depreciation for all other years (before the year youswitch to the straight line method) as follows. Reduce your adjusted basis in the property by the amount ofdepreciation claimed in earlier years. Multiply this new adjusted basis by the same decliningbalance rate used in earlier years. Figuring depreciation under both the declining balance method andthe straight line method is illustrated in the example followingStraight Line Method, later. Declining Balance Rates To figure your MACRS deduction, first determine your decliningbalance rate. You do this by dividing the specified declining balancepercentage (150% or 200% changed to a decimal) by the number of yearsin the recovery period. For example, for 3-year property depreciatedusing the 200% declining balance rate, divide 2.00 (200%) by 3 to get0.6667, or 66.67%. For 15-year property that is depreciated at the150% declining balance rate, divide 1.50 (150%) by 15 to get 0.10, or10%. The following table shows the declining balance rate for eachproperty class and the first year for which the straight line methodgives a greater deduction. For 3-, 5-, 7-, and 10-year property, therate is based on the 200% declining balance method. For 15- and20-year property, it is based on the 150% declining balance method. Property Class Declining Balance Rate Year 3-year 66.67% 3rd 5-year 40.0 4th 7-year 28.57 5th 10-year 20.0 7th 15-year 10.0 7th 20-year 7.5 9th Straight Line Method When using the straight line method, you must determine a newdepreciation rate for each tax year. Also, you must apply theappropriate convention. The conventions are explained later underApplying the Conventions. You determine the straight line depreciation rate for any tax yearby dividing the number 1 by the years remaining in the recovery periodat the beginning of your tax year. When figuring the number of yearsremaining, you must take into account the convention used in the yearyou placed the property in service. If the number of years remainingis less than 1, the depreciation rate for that tax year is 1.0 (100%). You figure depreciation for the year you place property in serviceas follows. Multiply your adjusted basis in the property by thedepreciation rate (as explained earlier). Apply the appropriate convention. If you dispose of property before the end of its recovery period,see Early Dispositions, later, for information on how tofigure depreciation for the year you dispose of it. You figure depreciation for all other years (including the year youswitch from the declining balance method to the straight line method)as follows. Reduce your adjusted basis in the property by the amount ofdepreciation claimed in earlier years (under any method). Determine the depreciation rate for the year as explainedearlier (taking into account the convention used in the year youplaced the property in service). Multiply the adjusted basis figured in (1) by thedepreciation rate figured in (2). Example.Karen Bell's tax year is the calendar year. In February, Karenplaced in service depreciable property with a 5-year recovery periodand a basis of $1,000. She does not elect to take the section 179deduction. There were no adjustments to the basis of the propertybetween the time she bought it and the time she placed it in service.Karen did not place any property in service in the fourth quarter. Sheuses the 200% declining balance (DB) method to figure depreciation.Because she did not place any property in service in the last threemonths of the year, she must use the half-year convention. First year. Karen figures the depreciation rate underthe 200% DB method by dividing 2 (200%) by 5 (the number of years inthe recovery period). The result is 40%. Karen figures thedepreciation rate for the first year under the straight line (SL)method by dividing 1 by 5, the number of years remaining in therecovery period at the beginning of her tax year. The result is 20%. Karen multiplies the adjusted basis of the property ($1,000) by the40% DB rate. She applies the half-year convention by dividing theresult ($400) by 2. Depreciation for the first year under the 200% DBmethod is $200. Karen multiplies the adjusted basis ($1,000) by the SL rate (20%).She applies the half-year convention by dividing the result ($200) by2. Depreciation for the first year under the SL method is $100. Because the SL method does not provide a larger deduction, Karendeducts the $200 figured under the 200% DB method. Second year. Karen reduces the adjusted basis ($1,000)by the depreciation claimed in the first year ($200). She multipliesthe result ($800) by the DB rate (40%). Depreciation for the secondyear under the 200% DB method is $320. Karen figures the SL depreciation rate for the second year bydividing 1 by 4.5, the number of years remaining in the recoveryperiod at the beginning of her tax year. (Because of the half-yearconvention, Karen used only half a year of the recovery period in thefirst year.) Karen multiplies the reduced adjusted basis ($800) by theresult (22.22%). Depreciation under the SL method for the second yearis $178. Because the SL method does not provide a larger deduction, Karendeducts the $320 figured under the 200% DB method. Third year. Karen reduces the adjusted basis ($1,000) bythe depreciation claimed in the first two years ($520). She multipliesthe result ($480) by the DB rate (40%). Depreciation for the thirdyear under the 200% DB method is $192. Karen figures the SL depreciation rate for the third year bydividing 1 by 3.5. She multiplies the reduced adjusted basis ($480) bythe result (28.57%). Depreciation under the SL method for the thirdyear is $137. Because the SL method does not provide a larger deduction, Karendeducts the $192 figured under the 200% DB method. Fourth year. Karen reduces the adjusted basis ($1,000)by the depreciation claimed in the first three years ($712). Shemultiplies the result ($288) by the DB rate (40%). Depreciation forthe fourth year under the 200% DB method is $115. accommodation in AveiroKaren figures the SL depreciation rate for the fourth year bydividing 1 by 2.5. She multiplies the reduced adjusted basis ($288) bythe result (40%). Depreciation under the SL method for the fourth yearis $115. Because both methods provide the same deduction, it does not matterwhich Karen chooses. Her depreciation deduction for the fourth year is$115. Fifth year. Karen reduces the adjusted basis ($1,000) bythe depreciation claimed in the first four years ($827). Shemultiplies the result ($173) by the DB rate (40%). Depreciation forthe fourth year under the 200% DB method is $69. Karen figures the SL depreciation rate for the fifth year bydividing 1 by 1.5. She multiplies the reduced adjusted basis ($173) bythe result (66.67%). Depreciation under the SL method for the fifthyear is $115. Because the SL method provides a larger deduction, Karen deductsthe $115 figured under the SL method and switches to the SL method. Sixth year. Karen reduces the adjusted basis ($1,000) bythe depreciation claimed in the first five years ($942). Because thereis less than one year remaining in the recovery period, thedepreciation rate for the sixth year is 100%. She multiplies thereduced adjusted basis ($58) by 100% to arrive at the depreciationdeduction for the sixth year ($58). Applying the Convention You must apply the appropriate convention in the following years. The year in which you place property in service. Luxus-Hotel ThessalonikiThe year you dispose of property if it is before the end ofthe recovery period. Half-Year Convention Generally, you use the half-year convention for property other thannonresidential real and residential rental property. Under this convention, you treat property as placed in service (ordisposed of) in the middle of the year. A half-year of depreciation isallowable for the year you place the property in service. This appliesregardless of when during the year you place the property in service. Unless you dispose of the property before the end of the recoveryperiod, you take a full year of depreciation in each of your tax yearsthat includes 12 full months of the recovery period. If you hold theproperty for the entire recovery period, you take a half-year ofdepreciation (any unrecovered basis) in your tax year that includesthe final 6 months of the recovery period. If you dispose of the property before the end of the recoveryperiod, a half-year of depreciation is allowable for the year ofdisposition. This applies regardless of when during the year youdispose of the property. First, figure the depreciation for a full year using the method youselect. Then you apply the half-year convention by dividing the fullamount of depreciation by 2. The result is your depreciation deductionfor the year in which you place the property in service or for theyear of disposal. Mid-Quarter Convention Under the mid-quarter convention, you treat property placed inservice (or disposed of) during any quarter as placed in service (ordisposed of) in the middle of 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. For information on how to determine if you must use themid-quarter convention, see The Mid-Quarter Conventionunder Conventions, earlier. A quarter of a full 12-month tax year is a period of three months.The first quarter in a year begins on the first day of the tax year.The second quarter begins on the first day of the fourth month of thetax year. The third quarter begins on the first day of the seventhmonth of the tax year. The fourth quarter begins on the first day ofthe 10 month of the tax year. A calendar year is divided into thefollowing quarters. Quarter Months First January, February, March Second April, May, June Third July, August, September Fourth October, November, December To figure your MACRS deduction using the mid-quarter convention,you must first figure your depreciation for the full year. Thenmultiply by the following percentages for the quarter of the year theproperty is placed in service. Quarter Percentage First 87.5% Second 62.5 Third 37.5 Fourth 12.5 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 property placed in service (ordisposed of) in any month as placed in service (or disposed of) in themiddle of the month. To figure your MACRS deduction using themid-month convention, first figure the depreciation for a full yearusing the straight line method. Then multiply this amount by afraction. The numerator of the fraction is the number of full monthsin the year that the property is in service plus 1/2 (or0.5). The denominator is 12. Example.You use the calendar year and place nonresidential real property inservice in August. The property is in service 4 full months(September, October, November, and December). Your numerator is 4.5 (4full months plus 0.5). Examples (Figuring MACRS Without Percentage Tables) The following examples show how to figure depreciation under MACRSwithout using the percentage tables. Figures are rounded for purposesof the examples. Assume for all of the examples that you use acalendar year as your tax year. Example 1 -- half-year convention.You bought for $10,000 and placed in service in March an item of7-year property. You do not elect a section 179 deduction for thisproperty. The adjusted basis of the property is $10,000. You use GDSto figure your depreciation. This is the only item of property youplaced in service during the year. You apply the half-year convention. The 200% declining balance rate for 7-year property is 28.57%. Youdetermine this by dividing 2.00 (200%) by 7 years. The result is .2857or 28.57%. You multiply the adjusted basis of $10,000 by .2857. This gives youa full year's depreciation, $2,857. You then apply the half-yearconvention by dividing $2,857 by 2. This gives you a depreciationdeduction for the first year of $1,429. For the second year, your depreciation deduction is $2,449. Youfigure this by subtracting $1,429 from $10,000 to get the adjustedbasis of $8,571 for the property. Then you multiply $8,571 by .2857(the full year rate for 7-year property using 200% DB). For the third and fourth years, you follow the same procedure. Yourdeduction for the third year will be $1,749 [$6,122 ($8,571- $2,449) .2857]. Your deduction for the fourthyear will be $1,249 [$4,373 ($6,122 - $1,749) .2857]. For the fifth year of the recovery period, you change to thestraight line method. You divide 1 by 3.5 (remaining years) to get.2857. That is the same as the 200% declining balance rate. Yourdeduction will be $893 [$3,124 ($4,373 - $1,249) .2857]. For the sixth year, you figure a straight line rate of .40 (1divided by 2.5 remaining years). Your deduction will be $892[$2,231 ($3,124 - $893) .40]. For the seventh year, you figure a straight line rate of .6667 (1divided by 1.5 remaining years). Your deduction will be $893[$1,339 ($2,231 - $892) .6667]. For the eighth year, your deduction will be your remaining basis of$446 ($1,339 - $893). At the beginning of this year theremaining recovery period (a half year) will be less than one year.The straight line rate is 100%. Example 2 -- mid-month convention.In January you bought and placed in service a building for $100,000that is nonresidential real property. The adjusted basis of thebuilding is its cost of $100,000. You figure your MACRS depreciationfor the building by dividing 1 by 39 years to get the straight linedepreciation rate for a full year of .02564. The depreciation for afull year is $2,564 ($100,000 .02564). Under the mid-monthconvention, you treat the property as placed in service in the middleof January. You would get 11.5 months of depreciation for the year.Expressed as a decimal, the fraction of 11.5 months divided by 12months is .958. Your first year depreciation for the building is$2,456 ($2,564 .958). For the second year, you subtract $2,456 from $100,000 to get yourunrecovered basis of $97,544 for the building. The straight line ratefor the second year will be .02629. This is 1 divided by the remainingrecovery period of 38.04. The remaining recovery period is therecovery period of 39 years reduced by 11.5 months or .958 and roundedto 38.04 years. Your depreciation for the building for the second yearwill be $2,564 ($97,544 .02629). For the third year, the unrecovered basis will be $94,980 ($97,544- $2,564). The straight line rate will be .027 (1 divided by37.04 remaining years). Your depreciation for the third year will be$2,564 ($94,980 .027). Example 3 -- mid-quarter convention.During January, you bought and placed in service a safe for $4,000,for use in your office. You also bought office furniture for $1,000that you placed in service in September. In October you bought andplaced in service a computer that cost $5,000 (not listed property).You do not elect a section 179 deduction. You use GDS to figure thedepreciation. The total bases of all property you placed in servicethis year is $10,000. Because the basis of the computer ($5,000) ismore than 40% of the total bases of all property ($10,000) placed inservice during the year, you must use the mid-quarter convention. Thisconvention will apply for all three items of property. The safe andoffice furniture are in the 7-year property class and the computer isin the 5-year property class. The 200% declining balance rate for 7-year property is .2857. Youdetermine this by dividing 2.00 (200%) by 7 years. The result is .2857or 28.57%. The depreciation for the safe for a full year is $1,143($4,000 .2857). Because you placed the safe in service in thefirst quarter of your tax year, you multiply $1,143 by 87.5%(mid-quarter percentage for the first quarter). The result is yourdeduction of $1,000 for depreciation on the safe for the first year. For the second year, you must first figure your adjusted basis ofthe safe. You do this by subtracting the first year's depreciation($1,000) from the basis of the safe ($4,000). Your depreciationdeduction for the second year is $857 [$3,000 ($4,000 -$1,000) .2857]. Because the furniture is also 7-year property, you use the same200% declining balance rate of .2857. You multiply the basis of thefurniture ($1,000) by .2857 to get the depreciation of $286 for thefull year. Because you placed the furniture in service in the thirdquarter of your tax year, you multiply $286 by 37.5% (mid-quarterpercentage for the third quarter). The result is your deduction of$107 for depreciation on the furniture for the first year. For the second year, you must first figure your adjusted basis ofthe furniture. You do this by subtracting the first year'sdepreciation ($107) from the basis of the furniture ($1,000). Yourdepreciation for the second year will be $255 [$893 ($1,000- $107) .2857]. The 200% declining balance rate for 5-year property is .40. Youdetermine this by dividing 2.00 (200%) by 5 years. The result is .40or 40%. The depreciation for the computer for a full year is $2,000($5,000 .40). Because you placed the computer in service inthe fourth quarter of your tax year, you multiply the $2,000 by 12.5%(mid-quarter percentage for the fourth quarter). The result is yourdeduction of $250 for depreciation on the computer for the first year. For the second year, you must first figure the adjusted basis forthe computer. You do this by subtracting the first year's depreciation($250) from the basis ($5,000). Your depreciation deduction for thesecond year will be $1,900 [$4,750 ($5,000 - $250) .40]. Example 4 -- mid-quarter convention.Last year, in October, you bought and placed in service in yourbusiness an item of 7-year property. This is the only item of propertyyou placed in service last year. The property cost $20,000 and youelected a $10,000 section 179 deduction. Your unadjusted basis for theproperty is $10,000. Because you placed your property in service inthe last 3 months of your tax year, you must use the mid-quarterconvention. You figured your deduction using the percentages in TableA-5 for 7-year property. Last year, your depreciation was $357($10,000 3.57%). In July of this year, your property was vandalized. You had adeductible casualty loss of $3,000. You spent $3,500 to put theproperty back in operational order. Your adjusted basis at the end ofthis year is $10,143. You figured this by subtracting the first year'sdepreciation ($357) and the casualty loss ($3,000) from the unadjustedbasis of $10,000. To this amount, you added the $3,500 repair cost. You cannot use the table percentages to figure your depreciationfor this property for this year because of the adjustments to basis.You must figure the deduction yourself. The declining balance rate for7-year property is .2857. You determined this by dividing 2.00 (200%)by 7 years. The result is .2857 or 28.57%. You multiply the adjustedbasis of your property ($10,143) by the declining balance rate of.2857 to get your depreciation deduction of $2,898 for this year. MACRS Deduction in Short Tax Year A short tax year is any tax year with less than 12 full months.This section discusses the rules for determining the depreciationdeduction for tangible property you place in service in a short taxyear. It also discusses the rules for determining depreciation whenyou have a short tax year during the recovery period other than theyear the property is placed in service. Determining Placed-in-ServiceDate in Short Tax Year The half-year, mid-quarter, and mid-month conventions establish thedate property is treated as placed in service and the dispositiondate. Depreciation is allowable only for that part of the tax year theproperty is treated as in service. The recovery period begins on theplaced-in-service date. The recovery period at the beginning of thenext tax year is the full recovery period less that part of the firsttax year for which depreciation is allowable. Mid-month convention.Under the mid-month convention, you always treat your property asplaced in service on the midpoint of the month you place it inservice. You apply this rule without regard to your tax year. Half-year convention.Under the half-year convention, you treat property as placed inservice on the midpoint of the tax year. First or last day of month.For a short tax year beginning on the first day of a month orending on the last day of a month, the tax year consists of the numberof months in the tax year. If the short tax year includes part of amonth, you generally include the full month in the number of months inthe tax year. You determine the midpoint of the tax year by dividingthe number of months in the tax year by 2. For the half-yearconvention, you treat property as placed in service on either thefirst day or the midpoint of a month. For example, a short tax yearthat begins on June 20 and ends on December 31 consists of 7 months.Because you use only full months for this determination, you treat thetax year as beginning on June 1 instead of June 20. The midpoint ofthe tax year is the middle of September (3 1/2 months fromthe beginning of the tax year). Example.Tara Corporation, a calendar year taxpayer, was incorporated onMarch 15. For purposes of the half-year convention, it has a short taxyear of 10 months, ending on December 31, 1999. During the short taxyear, Tara placed property in service for which it uses the half-yearconvention. Tara treats this property as placed in service on thefirst day of the sixth month of the short tax year, or August 1, 1999. Not on first or last day of month.For a short tax year not beginning on the first day of the monthand not ending on the last day of a month, the tax year consists ofthe number of days in the tax year. You determine the midpoint of thetax year by dividing the number of days in the tax year by 2. For thehalf-year convention, you treat property as placed in service oneither the first day or the midpoint of a month. If the result ofdividing the number of days in the tax year by 2 is not the first dayor the midpoint of a month, you treat the property as placed inservice on the nearest preceding first day or midpoint of a month. Mid-quarter convention.To determine if you must use the mid-quarter convention, comparethe basis of property you place in service in the last 3 months ofyour tax year to that of property you place in service during the fulltax year. The length of your tax year does not matter. If you have ashort tax year of 3 months or less, use the mid-quarter convention forall applicable property you place in service during that tax year. You treat property under the mid-quarter convention as placed inservice on the midpoint of the quarter of the tax year. Divide a shorttax year into 4 quarters and determine the midpoint of each quarter. For a short tax year of 4 or 8 full calendar months, determinequarters on the basis of whole months. The midpoint of each quarter iseither the first or the midpoint of a month. To determine the midpoint of a quarter for a short tax year ofother than 4 or 8 full calendar months, complete the following steps. Determine the number of days in your short tax year. Determine the number of days in each quarter. This means youdivide the number of days in your short tax year by 4. Determine the midpoint of each quarter. This means youdivide the number of days in each quarter by 2. If the result of (3) gives you a midpoint of a quarter that is on aday other than the first or midpoint of a month, treat the property asplaced in service on the nearest preceding first or midpoint of thatmonth. Example -- mid-quarter convention.Tara Corporation, a calendar year taxpayer, was incorporated andbegan business on March 15. It has a short tax year of 9 1/2 months, ending on December 31. During December it placedproperty in service for which it must use the mid-quarter convention.Because this is a short tax year of other than 4 or 8 full calendarmonths, it must determine the midpoint of each quarter. First, it determines that its short tax year beginning March15 and ending December 31 consists of 292 days. Next, it divides 292 by 4 to determine the length of eachquarter, 73 days. Finally, it divides 73 by 2 to determine the midpoint ofeach quarter, the 37th day. The following table shows the quarters of Tara Corporation's shorttax year, the midpoint of each quarter, and the date in each quarterthat Tara must treat its property as placed in service. Quarter Midpoint Placed in Service 3/15 - 5/26 4/20 4/15 5/27 - 8/7 7/2 7/1 8/8 - 10/19 9/13 9/1 10/20 - 12/31 11/25 11/15 The last quarter of the short tax year begins on October 20, whichis 73 days from December 31, the end of the tax year. The 37th day ofthe last quarter is November 25. Because the midpoint of the quarteris not the first or the midpoint of November, Tara Corporation musttreat the property as placed in service in the middle of November. Figuring Depreciation in a Short Tax Year You cannot use the MACRS percentage tables to determinedepreciation for a short tax year. If you place property in service ina short tax year, you must first determine the depreciation for a fulltax year. You do this by multiplying your basis in the property by theapplicable depreciation rate. Then determine the depreciation for theshort tax year. Do this by multiplying the depreciation for a full taxyear by a fraction. The numerator of the fraction is the number ofmonths (including parts of a month) the property is treated as inservice during the tax year (applying the applicable convention). Thedenominator is 12. See Depreciation in Recovery Years After ShortTax Year, later, for how to figure depreciation in later years. Example 1 -- half-year convention.Tara Corporation, with a short tax year beginning March 15 andending December 31, placed in service on March 16 an item of 5-yearproperty with a basis of $100. This is the only property thecorporation placed in service during the short tax year. Thedepreciation method for this property is the 200% declining balancemethod. The depreciation rate is 40% and Tara applies the half-yearconvention. Tara treats the property as placed in service on August 1. The lawallows Tara 5 months of depreciation for the short tax year thatconsists of 10 months. The corporation first multiplies the basis($100) by 40% (the declining balance rate) to get the depreciation fora full tax year of $40. The corporation then multiplies $40 by 5/12 to get the short tax year depreciation of $16.67. Example 2 -- mid-quarter convention.Tara Corporation, with a short tax year beginning March 15 andending on December 31, placed in service on October 16 an item of5-year property with a basis of $100. This is the only property thecorporation placed in service during the short tax year. Thedepreciation method for this property is the 200% declining balancemethod. The depreciation rate is 40%. The corporation must apply themid-quarter convention because the property was placed in service inthe last 3 months of the tax year. Tara treats the property as placed in service on September 1. UnderMACRS, Tara is allowed 4 months of depreciation for the short tax yearthat consists of 10 months. The corporation first multiplies the basis($100) by 40% to get the depreciation for a full tax year of $40. Thecorporation then multiplies $40 by 4/12 to get the shorttax year depreciation of $13.33. Depreciation in Recovery Years AfterShort Tax Year You can use either of the following to figure the depreciation forlater years in the recovery period. Simplified method Allocation method You must use the method you choose consistently until the yearof change to the straight line method. Simplified method.Under the simplified method, you figure the depreciation forsubsequent years in the recovery period by multiplying the unrecoveredbasis of your property at the beginning of the year by the applicabledepreciation rate. Example -- half-year convention.Tara Corporation has a short tax year of 10 months, ending onDecember 31. It placed in service an item of 5-year property with abasis of $100. It claimed depreciation of $16.67 using a depreciationrate of 40% and the half-year convention. The unrecovered basis onJanuary 1 of the next year is $83.33 ($100 - $16.67). Tara'sdepreciation for that next year will be 40% of $83.33, or $33.33. Short tax year after property in service.If a subsequent tax year in the recovery period is a short taxyear, you figure depreciation for that year by multiplying theunrecovered basis of the property at the beginning of the tax year bythe applicable depreciation rate, and then by a fraction. Thefraction's numerator is the number of months (including parts of amonth) in the tax year. Its denominator is 12. Allocation method.Under the allocation method, you figure the depreciation for eachsubsequent tax year by allocating to the tax year the depreciationattributable to each recovery year, or part of a recovery year, thatfalls within the tax year. Whether your tax year is a 12-month orshort tax year, you figure the depreciation by determining whichrecovery years are included in the tax year. For each recovery yearincluded, multiply the depreciation attributable to each recovery yearby a fraction. The fraction's numerator is the number of months(including parts of a month) that are in both the tax year and therecovery year. Its denominator is 12. The allowable depreciation forthe tax year is the sum of the depreciation figured for each recoveryyear. Example -- half-year convention.Assume the same facts as in Example 1 under FiguringDepreciation in a Short Tax Year. The Tara Corporations secondtax year is a full year of 12 months, beginning January 1 and endingDecember 31. A recovery year for the 5-year property placed in serviceduring the short tax year extends from August 1 to July 31. Taradeducted 5 months of depreciation for the first recovery year on itsshort-year tax return. The second tax year has 7 months of the firstrecovery year and 5 months of the second recovery year fall within it.The depreciation for the second tax year will be $33.33, which is thesum of the following. $23.33 -- The depreciation for the short year ($40 7/12). $10 -- The depreciation for the second tax year[$60 ($100 - $40) 40%] or ($24 5/12). More information.For more information on figuring depreciation in a short tax year,see Revenue Procedure 89-15 in Cumulative Bulletin 1989-1.