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Question

The third year of depreciation on business furniture costing $8,000 purchased in March 2013, using the half-year convention and accelerated deprecation, but no bonus depreciation; how can I calculate this problem?

Answer 1

Hi Larry,

Your question is about tax depreciation. For tax purposes, business furniture is depreciated over a 7-year period. Accelerated depreciation is calculated using the double declining balance method, which in any given year is equal to:

 

[(C - AD)/7 * 2], where C = cost, and AD = accumulated depreciation.

 

When applying the half-year convention, only 1/2 of the first year's depreciation can be taken.

 

Depreciation in year 3 = [(C - AD)/7 * 2], which is [(8,000 - AD)/7 * 2].  So, in order to calculate depreciation for year 3, you need to know accumulated depreciation as of the end of year 2.  

 

Depreciation in year 1 = [(8000 cost)/7*2] * 1/2 = 1,143.  Depreciation for year 2 = [(8,000 - 1,143)/7*2] = 1,959.  The sum of these is 3,102, which represents accumulated depreciation at the end of year 2.

 

So, depreciation for year 3 = [(8,000 - 3,102)/7*2] = $1,399.

 

The faster way to do this is to use the tax tables published by IRS, in this case for 7-year property using the half-year convention.  According to that table, depreciation for year 1 = 14.29% of the cost, year 2 = 24.49% of cost, and year 3 = 17.49% of cost.  

 

If we take 8,000 * 17.49%, we get 1,399, which is the same number we calculated above the long way.  

 

Hopefully that's helpful, Larry.  Feel free to reach out if you have questions.