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IRS.gov Website
Publication 534
taxmap/pubs/p534-003.htm#en_us_publink100043599

How To Figure the Deduction(p3)

rule
After you determine that your property can be depreciated under ACRS, you are ready to figure your deduction. Because the conventions are built into the percentage table rates, you only need to know the following.
  1. The unadjusted basis of your recovery property.
  2. The classes of recovery property.
  3. The recovery periods.
  4. Whether to use the prescribed percentages based on accelerated methods or percentages based on using the alternate ACRS method.
taxmap/pubs/p534-003.htm#en_us_publink100043600

Unadjusted Basis(p3)

rule
To figure your ACRS deduction, you multiply the unadjusted basis in your recovery property by its applicable percentage for the year. Unadjusted basis is the same amount you would use to figure gain on a sale, but it is figured without taking into account any depreciation taken in earlier years. However, reduce your original basis by the amount of amortization taken on the property and by any section 179 deduction claimed as discussed in chapter 2 of Pub. 946.
If you buy property, your unadjusted basis is usually its cost minus any amortized amount and minus any section 179 deduction elected. If you acquire property in some other way, such as by inheriting it, getting it as a gift, or building it yourself, you figure your unadjusted basis under other rules. See Pub. 551.
taxmap/pubs/p534-003.htm#en_us_publink100043601

Classes of Recovery Property(p3)

rule
All recovery property under ACRS is in one of the following classes. The class for your property was determined when you began to depreciate it.
taxmap/pubs/p534-003.htm#en_us_publink100043602

3-Year Property(p3)

rule
3-year property includes automobiles, light-duty trucks (actual unloaded weight less than 13,000 pounds), and tractor units for use over-the-road. Race horses over 2 years old when placed in service are 3-year property. Any other horses over 12 years old when you placed them in service are also included in the 3-year property class.
The ACRS percentages for 3-year recovery property are:
Recovery Period Percentage
1st year 25%
2nd year 38%
3rd year 37%
If you used the percentages above to depreciate your 3-year recovery property, your property, except for certain passenger automobiles, is fully depreciated. You cannot claim depreciation for this property after 1988.
taxmap/pubs/p534-003.htm#en_us_publink100043604

5-Year Property(p3)

rule
5-year property includes computers, copiers, and equipment, such as office furniture and fixtures. It also includes single purpose agricultural or horticultural structures and petroleum storage facilities (other than buildings and their structural components).
The ACRS percentages for 5-year recovery property are:
Recovery Period Percentage
1st year 15%
2nd year 22%
3rd through 5th year21%
If you used the percentages above to depreciate your 5-year recovery property, it is fully depreciated. You cannot claim depreciation for this property after 1990.
taxmap/pubs/p534-003.htm#en_us_publink100043606

10-Year Property(p3)

rule
10-year property includes certain real property such as theme-park structures and certain public utility property. Manufactured homes (including mobile homes) and railroad tank cars are also 10-year property.
You do not treat a building, and its structural components, as 10-year property by reason of a change in use after you placed the property in service. For example, a building (15-year real property) that was placed in service in 1981 and was converted to a theme-park structure in 1986 remains 15-year real property.
The ACRS percentages for 10-year recovery property are:
Recovery Period Percentage
1st year 8%
2nd year 14%
3rd year 12%
4th through 6th year10%
7th through 10th year9%
If you used the percentages above, you cannot claim depreciation for this property after 1995.
taxmap/pubs/p534-003.htm#en_us_publink100043608

Example. (p3)

On April 21, 1986, you bought and placed in service a new mobile home for $26,000 to be used as rental property. You paid $10,000 cash and signed a note for $16,000 giving you an unadjusted basis of $26,000. On June 8, 1986, you bought and placed in service a used mobile home for use as rental property at a total cost of $11,500. The total unadjusted basis of your 10-year recovery property placed in service in 1986 was $37,500 ($26,000 + $11,500). Your ACRS deduction was $3,000 (8% × $37,500). In 1987, your ACRS deduction was $5,250 (14% × $37,500). In 1988, your ACRS deduction was $4,500 (12% × $37,500). In 1989, 1990, and 1991, your ACRS deduction was $3,750 (10% × $37,500). In 1992, 1993, 1994, and 1995 your deduction for each year is $3,375 (9% × $37,500).
taxmap/pubs/p534-003.htm#en_us_publink100043609

15-Year Real Property(p3)

rule
15-year real property is real property that is recovery property placed in service before March 16, 1984. It includes all real property, such as buildings, other than that designated as 5-year or 10-year property.
Unlike the 3-, 5-, or 10-year classes of property, the percentages for 15-year real property depend on when you placed the property in service during your tax year. You could group 15-year real property by month and year placed in service.
In Table 1, at the end of this publication in the Appendix, find the month in your tax year that you placed the property in service in your trade or business or for the production of income. You use the percentages listed under that month for each year of the recovery period to determine your depreciation deduction each year.
taxmap/pubs/p534-003.htm#en_us_publink100043610

Example. (p3)

On March 5, 1984, you placed an apartment building in service in your business. It is 15-year real property. After subtracting the value of the land, your unadjusted basis in the building is $250,000. You use the calendar year as your tax year. March is the third month of your tax year. Your ACRS deduction for 1984 was $25,000 (10% × $250,000). For 1985, the percentage for the third month of the second year of the recovery period is 11%. Your deduction was $27,500 (11% × $250,000). For the third, fourth, and fifth years of the recovery period (1986, 1987, and 1988), the percentages are 9%, 8%, and 7%. For 1989 through 1992, the percentage for the third month is 6%. Your deduction each year is $15,000 (6% × $250,000). For 1993, 1994, and 1995, the percentage for the third month is 5%. Your depreciation deduction is $12,500 (5% × $250,000) for 1993, 1994, and 1995.
taxmap/pubs/p534-003.htm#en_us_publink100043611

Low-Income Housing(p4)

rule
Low-income housing that was assigned a 15-year recovery period under ACRS includes the following types of property.
  1. Federally assisted housing projects where the mortgage is insured under section 221(d)(3) or 236 of the National Housing Act, or housing financed or assisted by direct loan or tax abatement under similar provisions of state or local laws.
  2. Low-income rental housing for which a depreciation deduction for rehabilitation expenditures is allowed.
  3. Low-income rental housing held for occupancy by families or individuals eligible to receive subsidies under section 8 of the United States Housing Act of 1937, as amended, or under the provisions of state or local laws that authorize similar subsidies for low-income families.
  4. Housing financed or assisted by direct loan or insured under Title V of the Housing Act of 1949.
The ACRS percentages for low-income housing real property, like the regular 15-year real property percentages, depend on when you placed the property in service. In Table 2 or 3 at the end of this publication in the Appendix, find the month in your tax year that you first placed the property in service as rental housing. Use the percentages listed under that month for each year of the recovery period. Table 2 shows percentages for low-income housing placed in service before May 9, 1985. Table 3 shows percentages for low-income housing placed in service after May 8, 1985, and before 1987.
taxmap/pubs/p534-003.htm#en_us_publink100043612

Example.(p4)

In May 1986, you acquired and placed in service a house that qualified as low-income rental housing under item (3) of the above listing. You use the calendar year as your tax year. You use Table 3 because the property was placed in service after May 8, 1985. Your unadjusted basis for the property, not including the land, was $59,000.
Your deduction for 1986 through 2001 is shown in the following table.
YearRateDeduction
19868.9%$5,251
1987 12.1%7,139
1988 10.5%6,195
1989 9.1%5,369
1990 7.9%4,661
1991 6.9%4,071
1992 5.9%3,481
1993 5.2%3,068
1994 4.6%2,714
1995 4.6%2,714
1996 4.6%2,714
1997 4.6%2,714
1998 4.6%2,714
1999 4.5%2,655
2000 4.5%2,655
2001 1.5%885
taxmap/pubs/p534-003.htm#en_us_publink100043614

18-Year Real Property(p4)

rule
18-year real property is real property that is recovery property placed in service after March 15, 1984, and before May 9, 1985. It includes real property, such as buildings, other than that designated as 5-year, 10-year, 15-year real property, or low-income housing.
The ACRS percentages for 18-year real property depend on when you placed the property in service in your trade or business or for the production of income during your tax year. There are also tables for 18-year real property in the Appendix. Table 4 shows the percentages for 18-year real property you placed in service after June 22, 1984, and before May 9, 1985. Table 5 is for 18-year real property placed in service after March 15, 1984, and before June 23, 1984.
Find the month in your tax year that you placed the property in service in a trade or business or for the production of income. Use the percentages listed under that month for each year of the recovery period.
taxmap/pubs/p534-003.htm#en_us_publink100043615

Example.(p4)

On April 28, 1985, you bought and placed in service a rental house. The house, not including the land, cost $95,000. This is your unadjusted basis for the house. You use the calendar year as your tax year. Because the house was placed in service after June 22, 1984, and before May 9, 1985, it is 18-year real property. You use Table 4 to figure your deduction for the house. April is the fourth month of your tax year. Your deduction for 1985 through 2003 is shown in the following table.
YearRate Deduction
1985 7.0% $6,650
1986 9.0% 8,550
1987 8.0%7,600
1988 7.0%6,650
1989 7.0%6,650
1990 6.0%5,700
1991 5.0%4,750
1992 5.0%4,750
1993 5.0%4,750
1994 5.0%4,750
1995 5.0%4,750
1996 5.0%4,750
1997 5.0%4,750
1998 4.0%3,800
1999 4.0%3,800
2000 4.0%3,800
2001 4.0%3,800
2002 4.0%3,800
2003 1.0%950
taxmap/pubs/p534-003.htm#en_us_publink100043617

19-Year Real Property(p4)

rule
19-year real property is real property that is recovery property placed in service after May 8, 1985, and before 1987. It includes all real property, other than that designated as 5-year, 10-year, 15-year, or 18-year real property, or low-income housing.
The ACRS percentages for 19-year real property depend on when you placed the property in service in a trade or business or for the production of income during your tax year. Table 6 shows the percentages for 19-year real property.
You find the month in your tax year that you placed the property in service. You use the percentages listed under that month for each year of the recovery period.
taxmap/pubs/p534-003.htm#en_us_publink100043618

Recovery Periods(p4)

rule
Each item of recovery property is assigned to a class of property. The classes of recovery property establish the recovery periods over which the unadjusted basis of items in a class is recovered. The classes of property are:
taxmap/pubs/p534-003.htm#en_us_publink100043619

Alternate ACRS Method (Modified Straight Line Method)(p4)

rule
ACRS provides an alternate ACRS method that could be elected. This alternate ACRS method uses a recovery percentage based on a modified straight line method.
This alternate ACRS method generally uses percentages other than those from the tables. If you elected the alternate ACRS method, you determine the recovery period by using the following schedule. This schedule is for other than 18- and 19-year real property and low-income housing:
In the case of:You could have elected
a recovery period of:
3-year property3, 5, or 12 years
5-year property5, 12, or 25 years
10-year property10, 25, or 35 years
15-year real property15, 35, or 45 years
taxmap/pubs/p534-003.htm#en_us_publink100043621

Percentages.(p5)

rule
The straight-line percentages for the alternate ACRS method are:
Recovery Period Percentage
5 years 20.00%
10 years 10.00%
12 years 8.333%
15 years 6.667%
25 years 4.00%
35 years 2.857%
You apply the percentage to the unadjusted basis (defined earlier) of the property to figure your ACRS deduction. There are tables for 18- and 19-year real property later in this publication in the Appendix. For 15-year real property, see 15-year real property, later.
taxmap/pubs/p534-003.htm#en_us_publink100043623

3-, 5-, and 10-year property.(p5)

rule
If you elected to use an alternate recovery percentage, you have to use the same recovery percentage for all property in that class that you placed in service in that tax year. This applies throughout the recovery period you selected.
taxmap/pubs/p534-003.htm#en_us_publink100043624
Half-year convention. (p5)
If you elected the alternate method, only a half-year of depreciation was deducted for the year you placed the property in service. This applied regardless of when in the tax year you placed the property in service. For each of the remaining years in the recovery period, you take a full year's deduction. If you hold the property for the entire recovery period, a half-year of depreciation is allowable for the year following the end of the recovery period.
taxmap/pubs/p534-003.htm#en_us_publink100043625

Example.(p5)

You operate a small upholstery business. On March 19, 1986, you bought and placed in service a $13,000 light-duty panel truck to be used in your business and a $500 electric saw. You elected to use the alternate ACRS method. You did not elect to take a section 179 deduction. You decided to recover the cost of the truck, which is 3-year recovery property, over 5 years. The saw is 5-year property, but you decided to recover its cost over 12 years.
For 1986, your ACRS deduction reflected the half-year convention. In the first year, you deducted half of the amount determined for a full year. Your ACRS deduction for 1986 is as follows:
Light-duty truck 
5 years straight line = 20%
20% × $13,000 = $2,600
Half-year convention -1/2 of $2,600 =
$1,300.00
  
Electric saw 
12 years straight line = 8.333%
8.333% × $500 = $41.67
Half-year convention -1/2 of $41.67 =
20.84
Total ACRS deduction for 1986$1,320.84
   
You take a full year of depreciation for both the truck and the saw for the years 1987 through 1990. Your ACRS deduction for each of those years is as follows:
Light-duty truck 
5 years straight line = 20%
20% × $13,000 =
$2,600
  
Electric saw  
12 years straight line = 8.333%
8.333% × $500 =
$41.67
Total annual ACRS deduction for
1987 through 1990

$2,641.67
   
In 1991, you take a half-year of depreciation for the truck and a full year of depreciation for the saw. Your ACRS deduction for 1991 is as follows:
Light-duty truck 
5 years straight line = 20%
20% × $13,000 = $2,600
Half-year convention -1/2 of $2,600 =
$1,300.00
  
Electric saw 
12 years straight line = 8.333%
8.333% × $500 =
$41.67
Total ACRS deduction for 1991$1,341.67
   
The truck is fully depreciated after 1991. You take a full year of depreciation for the saw for the years 1992 through 1997. Your ACRS deduction for each of those years is as follows:
Electric saw  
12 years straight line = 8.333%
8.333% × $500 =
$41.67
Total annual ACRS deduction for
1992 through 1997

$41.67
   
You take a half-year of depreciation for the saw for 1998. Your ACRS deduction for 1998 is as follows:
Electric saw 
12 years straight line = 8.333%
8.333% × $500 =
41.67
Half-year convention -1/2 of $41.67 = 20.84
Total ACRS deduction for 1998$20.84
   
The saw is fully depreciated after 1998.
taxmap/pubs/p534-003.htm#en_us_publink100043631

15-year real property.(p5)

rule
Under ACRS, you could also elect to use the alternate ACRS method for 15-year real property. The alternate ACRS method allows you to depreciate your 15-year real property using the straight line ACRS method over the alternate recovery periods of 15, 35, or 45 years. If you selected a 15-year recovery period, you use the percentage (6.667%) from the schedule above. You prorate this percentage for the number of months the property was in service in the first year. If you selected a 35- or 45-year recovery period, you use either Table 11 or 15.
taxmap/pubs/p534-003.htm#en_us_publink100043632

Alternate periods for 18-year real property.(p5)

rule
For 18-year real property, the alternate recovery periods are 18, 35, or 45 years. The percentages for 18-year real property under the alternate method are in Tables 7, 8, 10, 11, 14, and 15 in the Appendix. There are two tables for each alternate recovery period. One table shows the percentage for property placed in service after June 22, 1984. The other table has the percentages for property placed in service after March 15, 1984, and before June 23, 1984.
taxmap/pubs/p534-003.htm#en_us_publink100043633

Alternate periods for 19-year real property.(p5)

rule
For 19-year real property, the alternate recovery periods are 19, 35, or 45 years. If you selected a 19-year recovery period, use Table 9 to determine your deduction. If you select a 35- or 45-year recovery period, use either Table 13 or 14.
taxmap/pubs/p534-003.htm#en_us_publink100043634

Example.(p5)

You placed in service an apartment building on August 3, 1986. The building is 19-year real property. The sales contract allocated $300,000 to the building and $100,000 to the land. You use the calendar year as your tax year. You chose the alternate ACRS method over a recovery period of 35 years. For 1986, you figure your ACRS deduction using Table 13. August is the eighth month of your tax year. The percentage from Table 13 for the eighth month is 1.1%. Your deduction was $3,300 ($300,000 × 1.1%). The deduction rate from ACRS Table 13 for years 2 through 20 is 2.9% so that your deduction in 1987 through 2005 is $8,700 ($300,000 × 2.9%).
taxmap/pubs/p534-003.htm#en_us_publink100043635

Alternate periods for low-income housing.(p5)

rule
For low-income housing, the alternate recovery periods are 15, 35, or 45 years. If you selected a 15-year period for this property, use 6.667% as the percentage. If you selected a 35- or 45-year period, use either Table 11, 12, or 15.
taxmap/pubs/p534-003.htm#en_us_publink100043636

Election.(p5)

rule
You had to make the election to use the alternate ACRS method by the return due date (including extensions) for the tax year you placed the property in service.
taxmap/pubs/p534-003.htm#en_us_publink100043637

Revocation of election.(p5)

rule
Your election to use an alternate ACRS method, once made, can be changed only with the consent of the Commissioner. The Commissioner grants consent only in extraordinary circumstances. Any request for a revocation will be considered a request for a ruling.
taxmap/pubs/p534-003.htm#en_us_publink100043638

ACRS Deduction in Short Tax Year(p6)

rule
For a tax year that is less than 12 months, the ACRS deduction is prorated on a 12-month basis. Figure the amount of the ACRS deduction for a short tax year as follows.
  1. First, you figure the ACRS deduction for a full year. You figure this by multiplying the unadjusted basis by the recovery percentage.
  2. You then multiply the ACRS deduction determined for a full tax year by a fraction.
The numerator (top number) of the fraction is the number of months in the short tax year and the denominator (bottom number) is 12. For example, a corporation placed in service in June 1986 an item of 3-year property with an unadjusted basis of $10,000. The corporation files a tax return, because of a change in its accounting period, for the 6-month short tax year ending June 30, 1986. The full year's ACRS deduction for this item is $2,500 ($10,000 × 25%), the first year percentage from the 3-year table. The ACRS deduction for the short tax year is $1,250 ($2,500 × 6/12).
You use the full ACRS percentages during the remaining years of the recovery period. For the first tax year after the recovery period, the unrecovered basis will be deductible.
taxmap/pubs/p534-003.htm#en_us_publink100043639

Exception. (p6)

rule
For the tax year in which you placed 15-, 18-, or 19-year real property in service or in the tax year you dispose of it, you compute the ACRS deduction for the number of months that the property is in service during that tax year. You compute the number of months using either a full-month or mid-month convention. This is true regardless of the number of months in the tax year and the recovery period and method used.