My state requires me to report personal property that I use for my design business. Here is the specific form in question: http://www.dat.state.md.us/sdatweb/pp1inst_2015.pdf. The form says that data processing equipment, such as computers, needs to be depreciated at 30% per annum.
The first time I filed this form, in 2013, I reported the computer's cost at its full value with no depreciation. To use round numbers, let's say that the computer was worth $1000 at the time. (It was actually more than that.)
The second time, in 2014, I reported the computer's original cost (hypothetically $1000) and had to report 30% depreciation on it. Using $1000 as the original cost, the depreciation would have been $300, and the computer's current end-of-year value for 2013 (used in the balance sheet's "Net Property, Plant and Equipment" line) would have been $700. (For simplicity, let's assume the computer and its depreciation are the only things I have to report in that section of the balance sheet. Here are my state's balance sheet and depreciation schedule forms.)
This year (2015, for tax year 2014) is the third year I have had to file this form and the second year that I have had to report the computer's depreciation. I'm assuming that I'm adding the second year's depreciation to the first year's. So the total depreciation of the computer in our scenario would be .30*1000 + X, where X is the depreciation during the second year of depreciation. The computer's total value now would be (1000 - .30*1000 - X) = Y.
If the second year's depreciation is calculated based on the original value of the computer, I get: total depreciation = (.30*$1000) + (.30*$1000) = $300 + $300 = $600. The total value of the computer now would be $1000 - $300 - $300 = $400.
If the second year's depreciation is calculated based on what the computer was worth at the beginning of the year (i.e. after the first year of depreciation), I would get: total depreciation = (.30*$1000) + (.30*($1000-$300)) = $300 + (.30*$700) = $300 + $210 = $510. Then the total value of the computer now would be $1000 - $510 = $490.
Since the personal property return's instructions say that property will normally not be depreciated below 25% of the cost, I think the second formula is correct, but I wanted to check.
Which is correct? Or is a different formula correct?