Business Tax Deductions and Asset Depreciation Methods

Posted on May 3, 2026 in Accounting and Finance

Chapter 10: MACRS Deduction Calculation

Year 2: Use the Year 2 row rate.

Asset	Purchase Date	Quarter	Recovery Period	(1) Original Basis	(2) Rate	(1) × (2) Depreciation
Computer equipment	23-March	1st	5 years	$ 6,200	20.00%	$ 1,240

Asset	Original Basis	Quarter (if mid-quarter)	Rate	Portion of Year	Depreciation Deduction
Furniture	$ 110,000	n/a	8.93%	50.00%	$ 4,912
Machinery	$ 127,000	–	10.93%	12.50%	$ 1,735
Delivery truck*	$ 64,000	n/a	19.20%	50.00%	$ 6,144
Machinery	$ 327,200	–	27.55%	62.50%	$ 56,340
Computer	$ 124,000	n/a	0.00%	50.00%	$ 0**
Total Depreciation	–	–	–	–	$ 69,131

* Used 100 percent for business.
** No depreciation for assets acquired and disposed of in the same year.

Isolate Depreciable Basis: Separate the cost of the Building from the cost of the Land (Land is non-depreciable).
Assign Class Life: Commercial/Non-residential: 39 years; Residential: 27.5 years.
Identify Convention: Real property automatically uses the Mid-Month Convention.
Determine Month of Placement: Identify the month the building was placed in service (e.g., April = Month 4).
Select Rate: Use the IRS Table for the specific month of purchase. Year 1 is a partial month rate; Year 2+ is the full-year Straight-Line rate.
Calculate: Depreciable Basis × Table Percentage.

Description	Amount	Explanation
(1) Property placed in service in 2025	$1,805,000	Total §179 qualified property
(2) Threshold for §179 phase-out	$4,000,000	2025 amount [§179(b)(2)]
(3) Phase-out of maximum §179 expense	$0	(1) – (2), not less than $0
(4) Maximum §179 expense before phase-out	$2,500,000	2025 amount [§179(b)(1)]
(5) Phase-out of maximum §179 expense	$0	From (3)
(6) Maximum §179 expense after phase-out	$1,805,000	Lesser of (4) – (5) or (1)

Note: §179 expense is not limited by taxable income.

Legal/Professional: Speeding Fine ($0); Legal Advice ($120). Total: $120.
Operating Expenses: Parking ($790); Football tickets ($0). Total: $790.
Political Expenses: Ad preparation/removal ($0). Total: $0.
Travel Expenses: Airfare ($740); Hotel ($1,000); Meals ($225); Registration ($630). Total: $2,595.

Formula: (Cash Received + FMV of Other Property + Mortgage Relief) – Selling Expenses