1. MACRS (Modified Accelerated Cost Recovery System)- MACRS is a system of recovering the cost of qualifying assets over a period of time as specified by the Internal Revenue code. Qualifying assets are personal property and real property acquired after 1986. Certain assets do not qualify for MACRS depreciation, including intangible assets such as trademarks, patents, goodwill, and off-the-shelf computer software. Instead, intangibles are amortized; goodwill over a 15-year period, and off-the-shelf computer software over a 3-year period.
   
   The MACRS system specifies the recovery period and the depreciation method to be used. Typical asset recovery periods for personal property are 3, 5, 7 10, 15 and 20 years. Typical recovery periods for real property are 27.5, 31.5, and 39 years. Refer to the table below for typical MACRS recovery periods for certain assets. See Rev. Proc. 87-56 (1987-2 CB 674) as modified by Rev Proc. 88-22 (1988-1 CB 785) for the complete table of class lives and recovery periods published by the IRS.
   
   MACRS uses the 200% declining-balance method (with a switch to straight-line in the year it is more advantages) for all personal property except personal property with 15 and 20 year recovery periods. For personal property with 15 and 20 year recovery periods, the 150% declining-balance method is used (switching to straight-line in the year it is more advantages). For real property, the straight-line method of depreciation is used. Salvage value is ignored under MACRS.
   
   In addition, MACRS specifies certain conventions for the first and last years of the recovery period. For personal property, the half-year convention applies. That is, in the year of acquisition and in the last year, a half-year of depreciation is allowed, no matter how long the asset is actually in service during its first or last year. In the year personal property is disposed of, a half-year of depreciation is also allowed. No depreciation is allowed if the asset is both acquired and disposed of during the same tax year.
   
   There is an exception to the half-year convention that applies to all property except real property, and that is called the mid-quarter convention. If more than 40% of the total cost of such personal property is placed in service during the last three months of the tax year, then the mid-quarter convention applies and all property placed in service during any quarter of that tax year is treated as placed in service as the mid-point of such quarter. For purposes of the 40% test, the basis of property which has been expensed under Section 179, and property that was both acquired and disposed of in the same year are excluded. Tables showing the mid-quarter convention are shown at item 5 below.
   
   For real property, the mid-month convention applies. Under this convention, a half-month of depreciation is allowed for the month the real property is acquired, and a half-month is allowed in the final month of the property's recovery period. In addition, a half-month is allowed in the month the real property is disposed. For example, if real property is acquired of during a calendar year on July 1st, 5.5 months of depreciation will be allowed during the first year.
   
   Note that the AMT lives are the same for both regular tax and AMT purposes for assets placed in service in 1999 and later. However, prior to 1999, the AMT lives in most cases were different for AMT purposes than they were for regular tax purposes (see column D below).

   (A)   Property Type	(B)   MACRS Recovery Period	(C) AMT Recovery Period (1999 to Present)	(D) AMT Recovery Period (1998 & Prior)
   Autos	5 Years	5 Years	5 Years
   Trucks-light general purpose (less than 13,000 lbs.)	5 Years	5 Years	5 Years
   Trucks-heavy general purpose (13,000 lbs or more)	5 Years	5 Years	6 Years
   Boats	10 Years	10 Years	18 Years
   Computers & peripherals	5 Years	5 Years	5 Years
   Telephone systems	5 Years	5 Years	5 Years
   Cellular telephones & PDA's	5 Years	5 Years	6 Years
   Typewriters, calculators, copy machines, & fax machines	5 Years	5 Years	6 Years
   Office furniture - desks, chairs, filing cabinets, safes, etc.	7 Years	7 Years	10 Years
   Carpets & blinds	5 Years	5 Years	9 Years
   Race horses, more than 2 years old	3 Years	3 Years	12 Years
   Breeding or work horses, 12 years old or less	7 Years	7 Years	10 Years
   Assets used in wholesale & retail trade, and professional services	5 Years	5 Years	9 Years
   Assets used in construction activities ( i.e., by general contractors, real estate subdividers, & developers)	5 Years	5 Years	6 Years
   Personal property with no class life	7 Years	7 Years	12 Years
   Land improvements (sidewalks, roads, fences, landscaping)	15 Years	15 Years	20 Years
   Residential real property	27.5 Years	27.5 Years	40 Years
   Commercial real property (1/1/87 to 5/12/93)	31.5 Years	31.5 Years	40 Years
   Commercial real property (5/13/93 to present)	39 Years	39 Years	40 Years

2. MACRS Personal Property Percentages- This table is used by multiplying the asset cost by the percentages to determine the MACRS depreciation.
    

   YEAR	3 YEAR ASSETS	5 YEAR ASSETS	7 YEAR ASSETS	10 YEAR ASSETS	15 YEAR ASSETS	20 YEAR ASSETS
   1	33.33%	20.00%	14.29%	10.00%	5.00%	3.750%
   2	44.45%	32.00%	24.49%	18.00%	9.50%	7.219%
   3	14.81%	19.20%	17.49%	14.40%	8.55%	6.677%
   4	7.41%	11.52%	12.49%	11.52%	7.70%	6.177%
   5		11.52%	8.93%	9.22%	6.93%	5.713%
   6		5.76%	8.92%	7.37%	6.23%	5.285%
   7			8.93%	6.55%	5.90%	4.888%
   8			4.46%	6.55%	5.90%	4.522%
   9				6.56%	5.91%	4.462%
   10				6.55%	5.90%	4.461%
   11				3.28%	5.91%	4.462%
   12					5.90%	4.461%
   13					5.91%	4.462%
   14					5.90%	4.461%
   15					5.91%	4.462%
   16					2.95%	4.461%
   17						4.462%
   18						4.461%
   19						4.462%
   20						4.461%
   21						2.231%

3. Additional Bonus Depreciation Deduction - The Job Creation and Worker Assistance Act of 2002 added a new provision that allowed an additional depreciation deduction equal to 30% of the adjusted basis of qualified assets placed in service on or after September 11, 2001 and before May 6, 2003. The Jobs and Growth Tax Relief Reconciliation Act of 2003 increased the first-year bonus depreciation deduction to 50% of the adjusted basis of qualified assets placed in service on or after May 6, 2003 and before January 1, 2005. The 2008 Economic Stimulus Tax Act reinstated the 50% first-year bonus depreciation for qualified assets acquired on or after January 1, 2008 and before January 1, 2009. The American Recovery and Reinvestment Act of 2009 extended the 50% bonus depreciation through December 31, 2009.
   
   Qualified assets are new MACRS assets which have a 20 year or less recovery period. Used property does not qualify.
   
   The additional bonus depreciation deduction is equal the applicable percentage (either 30% or 50% - see above) of the adjusted basis of the property after reduction by any Code Section 179 expense allowance. The regular MACRS deduction is computed on the remaining balance of the basis after reducing it by any Code Section 179 expense and the additional bonus depreciation deduction.
   
   
   AMT Does Not Apply - IRC Section 168(k)(2)(F) in the Job Creation and Worker Assistance Act of 2002 eliminates the AMT depreciation adjustment for property on which the 30% or 50% first-year bonus depreciation allowance is claimed. However, if you elect out, AMT will apply to that class of property (see below).
   
   Electing Out - The first-year bonus depreciation deduction is automatic unless one elects out for a specific class of property for a specific tax year. To elect out, attach a statement to the tax return indicating the class of property for which you are electing not to claim the additional 30% (or 50%) depreciation deduction. This election applies to all qualified property that is in the same class and placed in service in the same tax year. For example, an election out might be made for all 5-year property placed in service in the 2002 calendar year. AMT will apply to the property upon which the election has been made. The election must be made by the due date, including extension of the return in which the qualified property is placed in service. An election out is revocable only with the IRS' prior written consent.
    

4. Increase in the First-Year Luxury Auto Depreciation Limits - The Job Creation and Worker Assistance Act of 2002 increased the first-year depreciation limit for new passenger automobiles acquired on or after September 11, 2001 and before May 6, 2003 to $7,660. The Jobs and Growth Tax Relief Act of 2003 increased the first-year depreciation limit to $10,710 for new passenger automobiles acquired on or after May 6, 2003 and before January 1, 2004. Beginning January 1, 2004, the first-year depreciation limit was reduced to $10,610 for new passenger automobiles.

   
   Luxury Auto depreciation maximum limits by year:

   Date Placed in Service	1st Year	2nd Year	3rd Year	4th+
   After 6/18/84 & Before 1/1/85	$4,000	$6,000	$6,000	$6,000
   After 12/31/84 & Before 4/3/85	$4,100	$6,200	$6,200	$6,200
   After 4/2/85 & Before 1/1/87	$3,200	$4,800	$4,800	$4,800
   1/1/87 To 12/31/88	$2,560	$4,100	$2,450	$1,475
   1/1/89 To 12/31/90	$2,660	$4,200	$2,550	$1,475
   1/31/91 To 12/31/91	$2,660	$4,300	$2,550	$1,575
   1/31/92 to 12/31/92	$2,760	$4,400	$2,650	$1,575
   1/1/93 To 12/31/93	$2,860	$4,600	$2,750	$1,675
   1/1/94 To 12/31/94	$2,960	$4,700	$2,850	$1,675
   1/1/95 To 12/31/95	$3,060	$4,900	$2,950	$1,775
   1/1/96 To 12/31/96	$3,060	$4,900	$2,950	$1,775
   1/1/97 To 12/31/97	$3,160	$5,000	$3,050	$1,775
   1/1/98 To 12/31/98	$3,160	$5,000	$2,950	$1,775
   1/1/99 To 12/31/99	$3,060	$5,000	$2,950	$1,775
   1/1/00 To 12/31/00	$3,060	$4,900	$2,950	$1,775
   1/1/01 To 9/10/01	$3,060	$4,900	$2,950	$1,775
   9/11/01 To 5/5/03	$7,660	$4,900	$2,950	$1,775
   5/6/03 To 12/31/03	$10,710	$4,900	$2,950	$1,775
   1/1/04 To 12/31/04	$10,610	$4,800	$2,850	$1,675
   1/1/05 to 12/31/05	$2,960	$4,700	$2,850	$1,675
   1/1/06 to 12/31/06	$2,960	$4,800	$2,850	$1,775
   1/1/07 to 12/31/07	$3,060	$4,900	$2,850	$1,775
   1/1/08 to 12/31/08	$10,960	$4,800	$2,850	$1,775
   1/1/09 to 12/31/09	$10,960	$4,800	$2,850	$1,775
   1/1/10 to 12/31/10	$3,060	$4,900	$2,950	$1,775

5. Trucks and Vans - The depreciation dollar limits for "passenger" trucks and vans weighing less than 6,000 pounds are shown in the table below:

   Date Placed in Service	1st Year	2nd Year	3rd Year	4th+
   1/1/03 to 12/31/03	$11,010	$5,400	$3,250	$1,975
   1/1/04 to 12/31/04	$10,910	$5,300	$3,150	$1,875
   1/1/05 to 12/31/05	$3,260	$5,200	$3,150	$1,875
   1/1/06 to 12/31/06	$3,260	$5,200	$3,150	$1,875
   1/1/07 to 12/31/07	$3,260	$5,200	$3,050	$1,875
   1/1/08 to 12/31/08	$11,160	$5,100	$3,050	$1,875
   1/1/09 to 12/31/09	$11,160	$4,900	$2,950	$1,775

    

6. Mid-Quarter Convention- The following are tables for calculating MACRS (200% declining-balance) by quarter using the mid-quarter convention for 5 year and 7 year personal property. In the tables below, find the quarter the asset was placed into service and multiply the asset cost by the applicable percentage. For example, if a 5 year MACRS asset is placed into service in the 2nd quarter of its tax year, and the cost is $10,000, the first year depreciation under the mid-quarter convention is $2,500 ($10,000 X .25). The depreciation in the second year would be $3,000 ($10,000 X .3).

   NOTE: If a taxpayer’s third or fourth quarter includes 9-11-01, they may elect to apply the half-year convention to all property placed in service during the taxpayer’s 2001 tax year (calendar or fiscal). To make the election, write “Election pursuant to Notice 2001-70” across the top of Form 4562 (Depreciation and Amortization).

   FIRST QUARTER
   YEAR	5 Year Property	7 Year Property
   1	35.00%	25.00%
   2	26.00%	21.43%
   3	15.60%	15.31%
   4	11.01%	10.93%
   5	11.01%	8.75%
   6	1.38%	8.74%
   7		8.75%
   8		1.09%
   SECOND QUARTER
   YEAR
   1	25.00%	17.85%
   2	30.00%	23.47%
   3	18.00%	16.76%
   4	11.37%	11.97%
   5	11.37%	8.87%
   6	4.26%	8.87%
   7		8.87%
   8		3.34%
   THIRD QUARTER
   YEAR
   1	15.00%	10.71%
   2	34.00%	25.51%
   3	20.40%	18.22%
   4	12.24%	13.02%
   5	11.30%	9.30%
   6	7.06%	8.85%
   7		8.86%
   8		5.53%
   FOURTH QUARTER
   1	5.00%	3.57%
   2	38.00%	27.55%
   3	22.80%	19.68%
   4	13.68%	14.06%
   5	10.94%	10.04%
   6	9.58%	8.73%
   7		8.73%
   8		7.64%

7. Section 179 First-Year Expensing (Not applicable to Estates and Trusts)- Section 179 allows a taxpayer to expense the cost of qualified assets (tangible personal property) in the year of acquisition rather than capitalizing and depreciating them. The maximum Section 179 allowance is shown below in the table. The maximum dollar limitation shown below is reduced one dollar for every dollar of Section 179 property placed in service during the year in excess the amount shown in the third column.
   
   Tangible personal property (such as stoves, refrigerators, washing machines, etc.) used in a residential rental building (for example: an apartment building, or rental home) does NOT qualify for Section 179 first-year expensing.

   For SUV's with loaded weights between 6,000 and 14,000 pounds that are put into service after October 22, 2004, the maximum Section 179 deduction is $25,000.

   Section 179 does NOT apply to estates and trusts.

   If the tax year begins in:	The Maximum Section 179 is:	Reduce Sec. 179 by $1 for every $1 of assets acquired during the year over this amount:
   1987 to 1992	$10,000	$200,000
   1993 to 1996	$17,500	$200,000
   1997	$18,000	$200,000
   1998	$18,500	$200,000
   1999	$19,000	$200,000
   2000	$20,000	$200,000
   2001	$24,000	$200,000
   2002	$24,000	$200,000
   2003	$100,000	$400,000
   2004	$102,000	$410,000
   2005	$105,000	$420,000
   2006	$108,000	$430,000
   2007	$125,000	$500,000
   2008 - 2010	$250,000	$800,000

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