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+)
- 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
Financial AdvisorHow the depreciation tax rule can assist real estate investors.
InvestingFind out how you can build wealth and reduce your taxes.
InvestingCompanies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
InvestingThe declining balance method is a system for calculating an asset’s rate of depreciation against its non-depreciated balance.
TaxesIn regards to the sale of property, particularly in real estate, a 1031 exchange is increasingly being recognized for its tax benefits to investors of all levels.
InvestingProperty rights are laws governments create that enable investors to control, benefit from, and transfer property.
InvestingIf you can't afford property close to home, consider taking the real estate plunge elsewhere in the country.
Personal FinanceIn breakup, divorce or death, community or common law will determine how property is divided.
TaxesUnderstanding your property taxes can protect you from financial shocks.