Real Property Example: Straight-Line Alternate ACRS

Depreciation for real property begins in the month the property is placed in service. The straight-line deductions for the first and last years must be adjusted to reflect the number of months the property is actually in service.

Assume a corporation acquired a factory building in June 1982 for $400,000. The land is worth $100,000, so the depreciable basis of the building is $300,000. The date the building was placed in service makes the property a 15-year property under regular ACRS table rules and allows the use of 15, 35, or 45 years under alternate straight-line depreciation. Using the formula, the annual recovery rate for a 35-year recovery period is 2.857% (1/35 = 2.857%).

The calculations look like this:

Depreciation for 1982
$300,000 x 2.857% x 7/12	= $5,000
Depreciation for 1983
$300,000 x 2.857%	= $8,571
Depreciation for 2017
$300,000 x 2.857% x 5/12	= $3,571

 

Notice that in the first and last years, a partial year's cost recovery was calculated because the building was in service for less than 12 months in each of those years.