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Calculate negative depreciation for a monthly client
Negative current depreciation could potentially be calculated for a monthly client when a MACRS asset is disposed of after the 6th month of the period. This is because a MACRS asset takes 6 months of depreciation in the year of disposition.
If more than 6 months worth of depreciation has already been taken on the asset when you enter the disposition, a negative amount of current depreciation equal to the depreciation over 6 months' time will be calculated. This negative amount ensures that the current depreciation and YTD depreciation total to the correct amount for the 6 months of depreciation that's allowed under MACRS regulations.
Example
Consider a MACRS asset that's disposed of in August in a calendar-year client. If the client is being processed monthly, then 8 months of depreciation (January through August) will have been calculated. After you enter the disposition, the asset is only entitled to 6 months of depreciation. The 2 extra months of depreciation already taken on the asset needs to be added back to the asset’s basis by the application calculating negative depreciation.
Specifically, consider a MACRS asset that has generated $200 of depreciation per month for a calendar-year client. By August, $1600 ($200 x 8) of depreciation will have been taken on the asset. If the asset is disposed of in the month of August it will then, according to MACRS regulations, be entitled to only 6 months, or $1200, of depreciation. $1600 of depreciation has already been calculated for the asset, so $400 must be added back to the basis. The application does this by replacing the $200 that was in the
Current Depreciation
field with a negative $200 (-$200). This effectively removes the $200 of current depreciation calculated for August and adds back the $200 calculated for July, leaving the total depreciation for the year at $1200.