Half-Year Convention
A MACRS convention that treats all property placed in service (or disposed of) during a tax year as placed in service (or disposed of) at the midpoint of that year. This means only half of the first-year depreciation is allowed, regardless of the actual date the asset was placed in service.
Qualified Property
Property that meets the requirements for bonus depreciation under IRC § 168(k). It must be MACRS property with a recovery period of 20 years or less, and the original use must commence with the taxpayer (or it must meet the used property acquisition requirements added by TCJA).
Depreciable Basis
The amount of an asset’s cost that can be recovered through depreciation deductions. For business assets, this is typically the purchase price plus sales tax, delivery, and installation costs, multiplied by the business use percentage.
Alternative Depreciation System
A depreciation method required for certain property that uses straight-line depreciation over a longer recovery period than GDS. ADS is mandatory for listed property when business use is 50% or less, and for property used predominantly outside the United States.
Recovery Period
The number of years over which the cost of a depreciable asset is recovered through annual depreciation deductions under MACRS. Different asset classes have different recovery periods as specified in IRS Revenue Procedure tables.
Placed in Service
The date on which a depreciable asset is first available and ready for use in a trade or business or for the production of income. This is not necessarily the purchase date — it is when the asset is set up, installed, and operational.
Bonus Depreciation
An additional first-year depreciation deduction that allows businesses to immediately deduct a percentage of the cost of qualifying assets in the year they are placed in service, rather than depreciating them over their full recovery period.
Modified Accelerated Cost Recovery System
The current tax depreciation system in the United States, established by the Tax Reform Act of 1986. MACRS allows businesses to recover the cost of tangible property over a specified recovery period through annual deductions using declining balance methods that switch to straight-line.