Modified Accelerated Cost Recovery System
The modified accelerated cost recovery system (MACRS) is a depreciation method that applies to assets placed in service after 1986. This depreciation system allows the cost basis of certain tangible property to be recovered over the specified life of the asset by a depreciation deduction each year until exhausted.

Why should the property owner take the depreciation?
The property owner does not have to take the depreciation allowed. However, the cost basis is still reduced by the allowable depreciation even if the owner doesn't take the depreciation deduction.

**MUST KNOW**- Property Classes

  • Three-Year Property Racehorses, special tools, breeding hogs (Asset life: Four years or less)
  • Five-Year Property Computers light duty trucks, autos (Asset life: Four years +, but less than 10 years)
  • Seven-Year Property Office furniture, fixtures (Asset life: 10 years +, less than 16)
  • 10-Year Property Vessels, barges, tugs, water transportation equipment (Asset life: 16 years +, less than 20)
  • 15-Year Property Fences, bridges, sidewalks, roads, shrubbery (Asset life: 20 years+, less than 25)
  • 20-Year Property Farm buildings, municipal sewers (Asset life: 25 years+)

Straight-Line Recovery

  • 27.5-Year Property Residential real property
  • 39-Year Property Non-residential real property

Percentages are based on:

  • 200% declining balance for 10-year and less property
  • 150% declining balance for 15 and 20-year property

"Half-Year Convention"- In the year of acquisition and year of disposition, half-year depreciation is allowed in both scenarios.

"Mid-Quarter Convention"- If more than 40% of the property is placed in service in the last quarter of the year, then mid-quarter convention applies:

First quarter acquisition = 10.5 months allowable depreciation

Second quarter acquisition = seven and a half months allowable depreciation

Third quarter acquisition = four and a half months allowable depreciation

Fourth quarter acquisition = one and a half months allowable depreciation



Expensing Policy

Related Articles
  1. Managing Wealth

    How Rental Property Depreciation Works

    It's a bit tricky, but a valuable tool to make your investment pay off.
  2. Trading

    Use Real Estate To Put Off Tax Bills

    Find out how you can build wealth and reduce your taxes.
  3. Personal Finance

    Filling Out Form 4562: Investopedia Explains

    Step-by-step, how to fill out the depreciation and amortization form for your business tax return.
  4. Investing

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  5. Personal Finance

    What You Should Know About Real Estate Valuation

    Anyone involved in a real transaction can benefit from gaining a basic understanding of the different methods of real estate valuation.
  6. Personal Finance

    Sell Your Rental Property For A Profit

    Being a landlord can be taxing, especially when you want to sell. Find out how to reduce your burden.
  7. Personal Finance

    Getting U.S. Tax Deductions On Foreign Real Estate

    If your home or second home is not in the United States, you can still get U.S. tax deductions. How many and what kind depends on whether you also rent it.
  8. Personal Finance

    The Complete Guide To Becoming A Landlord: Hiring A Property Manager

    A property manager can perform such duties as marketing your rental property, selecting tenants, maintaining the property, creating budgets and collecting rent. You may consider hiring a property ...
  9. Personal Finance

    Investing In Property Out Of State

    If you can't afford property close to home, consider taking the real estate plunge elsewhere in the country.
  10. Personal Finance

    Investing In Foreclosures Not A Get-Rich-Quick Venture

    Investing in this kind of real estate takes capital, time and careful planning.
Trading Center