Dispositions Words you may need to know (see Glossary): Exchange A disposition is the permanent withdrawal of property from use inyour trade or business or in the production of income. A withdrawalcan be made by sale, exchange, retirement, abandonment, involuntaryconversion, or destruction. You generally recognize gain or loss onthe disposition of property by a sale. However, nonrecognition rulesmay allow you to postpone some gain. See Publication 544. For information on dispositions from a general asset account, seeDispositions and Conversions under General AssetAccounts, later. Early Dispositions Words you may need to know (see Glossary): Clean-fuel vehicle Clean-fuel vehicle refueling property Convention Nonresidential real property Placed in service Recovery period craps gewinn strategieResidential rental property If you dispose of your property before the end of its recoveryperiod, it is called an early disposition. If you dispose of propertydepreciated under MACRS, you are allowed a depreciation deduction forthe year of disposition. Determine your depreciation deduction for theyear of disposition by using the appropriate convention. As discussedearlier, always use a mid-month convention for residential rental andnonresidential real property. For all other property depreciated underMACRS, use either a half-year or mid-quarter convention depending onthe convention used when the property was placed in service. Mid-Month Convention Used If you dispose of residential rental or nonresidential realproperty, you base your depreciation deduction for the year ofdisposition on the number of months in the year of disposal that theproperty was in service. Under the mid-month convention, you treatproperty disposed of anytime during a month as disposed of in themiddle of that month. Count the month of disposition as half a monthof service. You determine the amount of depreciation to claim by determiningthe depreciation for the year and then multiplying by a fraction. Thenumerator of the fraction is the number of months (including partialmonths) in the year that the property is considered in service. Thedenominator is 12. Example.On July 2, 1997, you purchased and placed in service residentialrental property. The property cost $100,000, not including the cost ofland. You file your tax return based on the calendar year. You usedTable A-6 to figure your MACRS depreciation for this property. Yousold the property on March 2, 1999. The depreciation for the 1999 full tax year is $3,636. This is$100,000 multiplied by .03636 (the percentage for the seventh month ofthe third recovery year) from Table A-6. You then apply the mid-monthconvention for the 2 1/2 months of use in 1999. Multiply$3,636 by 2.5 and divide by 12 to get your 1999 depreciation deductionof $757.50. Property placed in service in short tax year.If you placed property in service in a short tax year, you areusing either the simplified method or the allocation method to figureyour depreciation in later years of the recovery period. How youfigure depreciation in the year of disposal depends on which methodyou are using. Simplified method.If you are using the simplified method, you figure depreciation inthe year of disposal by figuring depreciation for an entire year andthen multiplying that amount by a fraction. The numerator of thefraction is the number of months (including parts of months) that theproperty is in service in the year. The denominator is 12. Allocation method.If you are using the allocation method, you figure depreciation foreach recovery year that is included in the tax year. You multiply thedepreciation figured for each recovery year by a fraction. Thenumerator of the fraction is the number of months (including parts ofmonths) that the property was in service in the tax year. Thedenominator is 12. If there is more than one recovery year in the taxyear, you add together the depreciation for each recovery year. Half-Year Convention Used For property for which you used a half-year convention, thededuction for the year of disposition is half the depreciationdetermined for the full year. Property placed in service in full tax year and disposed ofin short tax year.If you dispose of property in a short tax year, you must determinethe midpoint of the year. See Half-year convention,earlier, under hotel rooms UtrechtMACRS Deduction in Short Tax Year forhow to determine the midpoint of a short tax year applying thehalf-year convention. Property placed in service in a short tax year and disposedof in a later short tax year.If you dispose of property in a short tax year that you had placedin service in an earlier short tax year, how you figure depreciationin the year of disposal depends on whether you are using thesimplified method or the allocation method. First you must figure themidpoint of the tax year of disposal. See Half-year convention,earlier, under MACRS Deduction in Short Tax Year forhow to determine the midpoint of a short tax year applying thehalf-year convention. See Simplified method orAllocation method, discounted hotels Noordwijk aan Zeeearlier, for information on how tofigure depreciation for the tax year of disposal. Mid-Quarter Convention Used For property for which you used the mid-quarter convention, youmust first determine the depreciation for the full year. Then youmultiply the depreciation by the applicable percentage for the quarterof the tax year you disposed of the property. The percentages to usefor each quarter of the tax year are shown in the following table. Quarter Percentage First 12.5% Second 37.5 Third 62.5 Fourth 87.5 Property placed in service in full tax year and disposed ofin short tax year.If you dispose of property in a short tax year, you must determineboth the quarter in which you dispose of the property and the midpointof that quarter. See Mid-quarter convention, earlier, underMACRS Deduction in Short Tax Year for how to determine themidpoint of a quarter in short tax year. Property placed in service in a short tax year and disposedof in a later short tax year.If you dispose of property in a short tax year that you had placedin service in an earlier short tax year, how you figure depreciationin the year of disposal depends on whether you are using thesimplified method or the allocation method. First you must figure thequarter in which you disposed of the property and the midpoint of thatquarter. See Mid-quarter convention, earlier, underMACRS Deduction in Short Tax Year for how to determine themidpoint of a quarter in a short tax year. See Simplified methodor Allocation method, Athen hotelsearlier, for information on howto figure depreciation for the tax year of disposal. Example.On December 2, 1997, you placed an item of 5-year property inservice in your business. The property cost $10,000 and you did notclaim a section 179 deduction. Your basis for the property is $10,000.This is the only item of business property you placed in service in1997. Because you placed the property in service during the last 3months of your tax year, you had to use the mid-quarter convention forthis item of property. Because your property is in the 5-year propertyclass, you used Table A-5 to figure your depreciation deduction. Yourdeductions for 1997 and 1998 were $500 (5% of $10,000) and $3,800 (38%of $10,000). If you dispose of the property on April 6, 1999, figureyour 1999 depreciation using the mid-quarter convention. First figurethe deduction for the full year of 1999, which is $2,280 (22.8% of$10,000). Since April is in the second quarter of the year, youmultiply $2,280 by 37.5% to get your depreciation deduction of $855for 1999. Depreciation Recapture With the exception of gain on the disposition of residential rentaland nonresidential real property, all gain on the disposition ofproperty depreciated under MACRS is recaptured (included in income) asordinary income up to the amount of previously allowed depreciationdeducted for the property. Depreciation for this purpose includes anysection 179 deduction claimed on the property and any deductionclaimed for clean-fuel vehicles and clean-fuel vehicle refuelingproperty. There is no recapture for residential rental andnonresidential real property. For more information on depreciationrecapture, see Publication 544.