MACRS Depreciation
The Modified Accelerated Cost Recovery System (MACRS) is the primary depreciation method for tax purposes, assigning assets to recovery periods with prescribed depreciation methods and conventions.
Explanation
MACRS uses the General Depreciation System (GDS) with recovery periods of 3, 5, 7, 10, 15, 20, 27.5, or 39 years. Most personal property uses 200% declining balance switching to straight-line, while nonresidential real property uses straight-line over 39 years. Conventions (half-year, mid-quarter, mid-month) determine the depreciation in the placed-in-service and disposal years. Section 179 allows immediate expensing up to annual limits, and bonus depreciation may allow 100% first-year deductions.
Key Points
- •Recovery periods: 5-year (autos, computers), 7-year (furniture, equipment), 39-year (commercial buildings)
- •Half-year convention is default; mid-quarter applies if >40% placed in service in Q4
- •Section 179 and bonus depreciation can accelerate deductions significantly
Exam Tip
The mid-quarter convention is triggered when more than 40% of personal property is placed in service during the last quarter of the tax year.
Frequently Asked Questions
Related Topics
Property Transactions
Property transactions encompass the tax rules for gains and losses from the sale, exchange, or disposition of assets, including characterization as ordinary, capital, or Section 1231.
Basis Calculations
Basis is the amount of a taxpayer's investment in an asset for tax purposes, used to determine gain or loss on disposition and depreciation deductions.
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