How is the MACRS deduction determined in the year of disposition for property using the half-year convention?

The Modified Accelerated Cost Recovery System (MACRS) allows for accelerated depreciation on property, which means that businesses can recover their investment in the property more quickly for tax purposes. Under the half-year convention, which is commonly applied to most types of depreciable property, the assumption is made that the property is placed in service and disposed of at mid-year.

When property is disposed of during the year and the half-year convention is used, the tax regulations state that only half of the annual depreciation amount that would normally be allowed in a full year is permitted for the year of disposition. This method ensures that both the use of the asset for part of the year and the earlier depreciation deduction are accounted for accurately.

Thus, in the year of disposition, taxpayers can deduct half of the annual depreciation, which leads to the conclusion that half of the normal depreciation is allowed. This rule accommodates the fact that the asset was not used for the full year, reflecting a reasonable and fair approach to calculating depreciation for tax purposes.