What Is MACRS? Definition, Asset Life & Percentage

Definition – MACRS (Modified Accelerated Cost Recovery System)

MACRS is the abbreviation of Modified Accelerated Cost Recovery System. Modified Accelerated Cost Recovery System is a tax depreciation system in the United States.

Modified Accelerated Cost Recovery System allows accelerated depreciation over longer time periods for the qualifying assets. MACRS was introduced in 1986.

In simple terms, it is the standard method of depreciation for federal income tax purposes. The lives and claimable percentage of depreciation have been defined by IRS in Inter Revenue Code. We will discuss them later in this article.

Purpose of Modified Accelerated Cost Recovery System

The main purpose of MACRS depreciation method was to eliminate the uncertainties related to the scrap values and the total life of assets.

Under this system, each asset is assigned a zero scrap value and later the sale of the asset is considered as income.

Secondly, the purpose was to encourage the taxpayer to acquire more assets by depreciating at an accelerated rate. It used the declining depreciation method in the first place and then switches to straight-line depreciation.

As we all know that the declining balance methods will never produce a zero scrap value without an adjustment. Thus, to obtain zero scrap value, it switches to straight-line depreciation.

Types of Modified Accelerated Cost Recovery System

There are 2 types of Modified Accelerated Cost Recovery System:

1. Alternative Depreciation System (ADS).
2. General Depreciation System (GDS).

Usually, the GDS is widely used for most assets.

Classes of Assets Defined by IRS

MACRS Percentage for property class  How to Calculate Depreciation Under Modified Accelerated Cost Recovery System?

There are three steps to calculate the depreciation:

1. Define the class of the property fro the Class table given above.
2. Define the required depreciation convention. Modified Accelerated Cost Recovery System mostly uses half-year convention.
3. Choose the Depreciation Method. There are 3 different depreciation methods; The table will also provide this to you.

Read Publication 946 by IRS for more details about Modified Accelerated Cost Recovery System.

We have created some useful tax calculators like Simple Tax Estimator, Itemized Deduction Calculator, 401k Calculator etc.

These templates which can help you easily calculate your federal income tax. These templates are free to download and easy to use with no limitations.

Disclaimer: Interpretation of the above topics is for education purpose and cannot be considered as a legal advice. It is highly recommendable to consult a CPA or tax consultant before going for Modified Accelerated Cost Recovery System.

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