 Most of this information comes from Publication 946, How to Depreciate Property Tax Year 2022. You can find on the IRS website, irs.gov, irs.gov. Looking at the income tax formula, noting we're in line one income. Remembering the first half of the income tax formula is an essence and income statement, but just to outline other forms and schedules flowing into these line items, one of those, the Schedule C, having business income minus business expenses, the net business income rolling in from Schedule C to line one income of the income tax formula. First page of the Form 1040, noting that the Schedule C flows into the Schedule 1 flowing into the first page of the Form 1040, line number eight. The Schedule C is the profit or loss from business, has an income statement format, income minus expenses. Expenses is our point of focus now, more specifically on depreciation. Remembering that if we buy equipment, we might have to put it on the books as an asset deviating from a cash-based system. In that case, even if we're using a cash-based system because the tax code makes us do that, and then we would have to allocate the depreciation over the useful life, and the methods of allocation might be similar in concept, but will be different from the tax code to book depreciation concepts. We are now talking about the makers depreciation method, the standard depreciation methods, and then we'd have to layer on top of that the concepts of like 179 and special depreciation concepts. Okay, so continuing on with the makers depreciation, one of the major formats of depreciation for the tax code. Which depreciation method applies? Makers provides three depreciation methods under GDS, the standard, the usual format, as one depreciation and one depreciation method under ADS, the less usual standard. Okay, so we've got the 200 declining balance method over a GDS for the, that's the GDS for the makers depreciation methods. That's the recovery period. Now, when we talk about 200%, if you compare that to normal depreciation theology or theory from a bookkeeping side of things, then you would start with the straight line usually. Straight line in essence means you're gonna take like the cost, you're gonna divide it by the useful life, and then you're gonna allocate that cost evenly over the useful life until the cost has been fully distributed and it has been fully depreciated. But you might have some accelerated depreciation methods, one of the more common ones being a double declining balance, which you might call a 200% declining balance type of method. And that's what we're basically talking about here. It still makes rational sense from an accounting standpoint, oftentimes, because you could argue that I'm using the equipment more, I'm getting more out of it in the first years than the latter years. Therefore, I shouldn't be depreciating evenly over the timeframe, but rather getting more depreciation upfront. When I say getting more depreciation, by the way, that's good for taxes usually. So I would like an accelerated depreciation for taxes. It's bad usually for other accounting purposes in the terms of making your financial statements look as good as possible, which is usually the perspective of someone reporting externally, say to stockholders or something like that. So for taxes, yes, we would like the accelerated method if we can take it as opposed to a straight line method usually, and that's usually what the makers gives us. So then we've got the 150% declining balance method over GDS recovery period. Similar process, it's more front loaded, taking more upfront than the straight line method, but less than the 200% declining balance. The straight line method over GDS recovery period. So now you've got the standard baseline method, the conceptual method that should first come to line or to mind when you're thinking about depreciation methods, straight line even amount per the year for however many years apply, and then you've got the straight line method over an ADS recovery period. So normally, if you had a choice between all four of these methods, from a tax standpoint, we would probably want the double declining or the 200% declining because that means we're gonna get the most depreciation upfront, less depreciation towards the tail end of the life of the property. And if we can get the benefit sooner, that's usually better for taxes because of time value of money. However, there are exceptions. For example, if I think next year or in future years, I'm gonna have higher income than in the current year pushing me up into higher tax brackets in latter years, then maybe I would like to take the straight line method and that will deduct an even amount in each year taking more of the depreciation possibly in those latter years where I might have the higher income. I might get more benefit that way. So again, the general rule, we deduct as much as possible as we can as soon as possible unless we have some rationale as to why wouldn't we do that? And then we're gonna have to be in compliance, of course, with the tax code as we have that thought process in our mind. So caution, your property placed in service before 1999, you could have elected the 150 declining balance method using the ADS recovery periods for certain property classes. If you made this election, continue to use the same method and recovery periods for that property. So usually the concept of consistency will apply here because you can't really alter or change the methods once they've been put into place as a general rule. You want consistency to allocate the depreciation over the life. All right, depreciation methods for foreign property. Remember that farming also always has their specialized kind of stuff or almost always quite often does. If you deal with farming, you might be having a specialized kind of area that's a specialty field you can look into. So if you place personal property in service in a farming business after 1988 and before 2018, you must generally depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under ADS or I'm sorry, GDS or ADS using the straight line method. So now you don't get the double declining or stuck at the 150 declining unless you elect to take a straight line kind of method. And so note that the straight line method is kind of usually just that, it's an election. Oftentimes, and if you have the ability to take the double declining or an accelerated method, 150% in this case, usually you would do that unless you have some rationale for defaulting back to like a straight line method. So you can depreciate real property using the straight line method under either GDS or ADS.