Final answer:
The MACRS deduction in the year of disposition for property under the half-year convention is computed by determining the full year's depreciation from the MACRS table, then taking only half of that amount due to the half-year convention.
Step-by-step explanation:
The Modified Accelerated Cost Recovery System (MACRS) is the tax depreciation system used in the United States. When a property depreciated under MACRS using the half-year convention is disposed of, the MACRS deduction for the year of disposition is generally limited to half the year's depreciation amount, regardless of when during the year the property is sold. This is due to the half-year convention assuming that the property was in service for only half of the year. To compute the MACRS deduction in the year of disposition:
- Determine the property's depreciation rate from the appropriate MACRS depreciation table.
- Apply the depreciation rate to the property's depreciable basis to calculate the full year depreciation expense.
- Take only half of the computed annual depreciation expense since the half-year convention is in place.
It is essential to note that this calculation method applies to property sold or otherwise disposed of in the year that the half-year convention affects.