Say I had 5-year property places in service in Q1. I paid $10000 for it and it was used 100% for business. I could go to page 71 of the 2014 Pub 946 and read off the percentages: 35%, 26%, 15.60%, 11.01%, 11.01%, and 1.38%. So in the initial and subsequent years I'd take depreciation of $3500, $2600, $1560, $1101, $1101, and $138 for a total of $10000 and zero remaining basis.
If used at a constant 80%, then it is my understanding I'd apply the same percentages to $8000 (80% of $10000) and so end up with $2800, $2080, $1248, $881, $881, and $110 for a total of $8000 and $2000 remaining basis.
(While typing that a new question came to mind -- what happens to that $2000 basis if the use subsequently shifts to 100% (or anything more than 80%)? Is it "trapped" because you hit the end of the property depreciable lifetime without depreciating away all the basis? Can the remaining basis be somehow considered to be "put into service" when the business use increases (like when any other previously personal asset is put into service for business use)?)
But say you had the same item but instead of the business use being 80% the whole time it changed from year to year. Say it goes 90%, 70%, 85%, 75%, 65%, 80%.
Now what happens?
Do you compute what the depreciation would have been if it was all 100% use and then multiply each of those years by the business use percentage that year? For example, would you do: $3500 * 90% = $3150 $2600 * 70% = $1820 $1560 * 85% = $1326 $1101 * 75% = $ 826 $1101 * 65% = $ 716 $ 138 * 80% = $ 110
for a total of $7948 of depreciation and $2052 of remaining basis? Or do you do something else?
For example, on page 41 of the 2014 Pub 946 I found the algorithmic description of 200% DB MACRS, and that says for the initial year: 1. Muliply your adjusted basis in the property by declining balance rate. 2. Apply the applicable convention and then for subsequent years: 1. Reduce your adjusted basis in the property by the deprection allowed or allowable in earlier years. 2. Multiply this new adjusted balance by the same declining balance rate used in earlier years.
with the overriding instruction to switch to straight line when it gives the bigger deduction.
But how does that work with a time-varying business use percentage? What initial adjusted basis do you use? How do you account for each year's actual business percentage? And what basis do you use at each step?
Rich Carreiro email@example.com