Declining Balance Method

Declining Balance Method

A way of calculating the depreciation of an asset whereby one subtracts a certain percentage of its current value each year. For example, suppose an asset costing $100,000 depreciates 10% each year. After the first year, it depreciates to $90,000. In the second year, one deducts 10% from the $90,000, rather than the original $100,000. Thus, the depreciated value after the second year is $81,000. This is a common means of calculating depreciation.
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the straight line method and declining balance method.
For owned autos used more than 50% for business, taxpayers can use regular MACRS depreciation, which is the 200% declining balance method applied to a five-year recovery period.
In the declining balance method, the beginning-of-year book value is multiplied by a fixed rate.
If the depreciation method of the replacement property in the year of replacement is the 150% declining balance method and the method of the relinquished property is the 200% declining balance method, and if neither method had been switched to the straight-line method in the year of replacement or any prior taxable year, the applicable depreciation rate for the year of replacement and subsequent taxable years is determined by using the rate of the replacement property as if that property were placed in service by the acquiring taxpayer at the time the relinquished property was placed in service by the acquiring taxpayer, until the 150% declining balance method has been switched to the straight-line method (Treas.
For example, the cost of depreciable land improvements may be depreciated over a 15-year period using the 150-percent declining balance method of depreciation.
Under the corporate alternative minimum tax regime that was enacted in 1986, depreciation on property placed in service after 1986 must be computed by using the class lives prescribed by the alternative depreciation system of section 168(g) and either (1) the straight-line method in the case of property subject to the straight-line method under the regular tax, or (2) the 150-percent declining balance method in the case of other property.
It would replace the 200% declining balance method with a 150% declining balance method on 3-, 5-, 7- and 10-year assets.
The Tax Reform Act of 1986 (TRA) permitted more accelerated depreciation for tax purposes by providing that, in most cases, assets can be depreciated under a 200-percent, rather than a 150-percent, declining balance method.
The company has adopted a 130 percent declining balance method for its North America accounts and 125 percent declining balance method for the Europe subscribers.
Under the AMT, depreciation on property placed in service after 1986 must be computed by using the class lives prescribed by the alternative depreciation system of section 168(g) and either (1) the straight-line method in the case of property subject to the straight-line method under the regular tax, or (2) the 150-percent declining balance method in the case of other property.
While the act lengthens the depreciation period, it also provides that, in most cases, the assets can be depreciated under a 200-percent, rather than a 150-percent, declining balance method.
168(d) apply in computing the aggregate amount of depreciation; however, this computation is made without regard to any elections to use the 150% declining balance method, the straight-line method, or the alternative depreciation system (ADS), or the requirement to depreciate eligible qualified property using the straight-line method.