MACRS Table Short-Year Calculation

A problem is created when MACRS tables are used and a short tax year occurs. Revenue Procedure 87-57 states:

 "The MACRS depreciation tables cannot be used in the following situations, where:

property is placed in service in a short tax year,

a short tax year occurs during the recovery period of property, or

a disposition of property occurs in a short tax year."

Because of these special restrictions, when you elect the MACRS table method, the system checks whether a short year occurred during the year that you placed the asset in service. If the acquisition year was a short tax year, you cannot select the MACRS table method. Rather, the system prompts you to use the MACRS formula method.

If a short year is established after you have entered an asset that uses the MACRS table method into the system, the system changes the asset's depreciation calculation. The system uses the formula method to make all depreciation calculations beginning from the start of the first short tax year of the asset's life. The system considers the date of the last calculation before the short year to be the date of conversion to the MACRS formula method. When computing remaining depreciable basis, the system treats all depreciation taken to that date as total prior depreciation.

In the formula calculation, the system automatically considers any differences between the table and formula methods (adjustments due to the effects of rounding in the tables). The formula calculation is based on a declining depreciable basis with a fixed depreciation rate.

When an asset’s depreciation is calculated through the conversion from MACRS table to MACRS formula, affected reports still show the use of the table method, but also print an f in the Key column, indicating the conversion to the formula calculation.