How to calculate the depreciation deduction for an asset you removed from your business before the end of its recovery years?
If you remove an asset from your business before you are done depreciating it in full, the year you removed it from service, you could not claim the full year depreciation for that year. You will claim a partial depreciation as follow:
Step1: calculate the depreciation deduction you would have claimed for that year if the asset were not removed from service
Step2: Find what type of convention you used to depreciate the asset from the start
Step 3: know the date the asset was removed from your business
Step4: calculate the partial depreciation deduction for the asset
Half-year convention
If in step 2 you noticed you used half-year convention to depreciate the asset, take the depreciation deduction for that year in step1 divided by 2 to calculate the partial depreciation deduction for the asset being removed from service.
Mid-month convention
If you removed a residential rental property from service earlier than expected or you removed a nonresidential real property off service earlier, take the depreciation deduction for that whole year calculated in step1 multiplied by the number of months the asset was in service during the year you removed from the business (step 3) divided by 12 months to find the partial depreciation deduction in step 4.
Mid-quarter convention
mid quarter convention rate for asset remove out of service early
If the asset was depreciated using mid-quarter convention from the beginning, take the full year depreciation deduction for that year you took it off service (step1) multiplied by the percentage that correspond to the quarter the asset was removed from the business determined in step 3 to calculate the partial depreciation deduction for the asset in step 4.
If you remove the asset out of the business during the 1st quarter use 12.5%
For the 2nd quarter use 37.5%
For the 3rd quarter use 62.5%
For the 4th quarter use 87.5%
IRS Publication 946 (2019) page 40
Depreciation Spreadsheet-DS22821
2020 Federal Tax Forms and Instructions
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