DEFINITION of 'Alternative Depreciation System - ADS'

Alternative depreciation system is a depreciation schedule with a longer recovery period that generally better mirrors the asset's income streams than declining balance depreciation. If alternative depreciation system is elected, it must be applied to all property of the same class placed in service during the same year. Taxpayers who elect to use the alternative depreciation system feel that the alternative schedule will allow for a better match of depreciation deductions against income than the recovery period under the general depreciation system. Once they have chosen alternative depreciation system, the taxpayer can not switch back.

BREAKING DOWN 'Alternative Depreciation System - ADS'

For property placed in service after 1986, the IRS requires that the Modified Accelerated Cost Recovery System (MACRS) be used to depreciate the property. There are two methods which fall under Modified Accelerated Cost Recovery System: General Depreciation System and Alternative Depreciation System. The Alternative Depreciation System offers depreciation over a longer period of time than the general depreciation system which is a declining balance method.

Since the alternative depreciation system offers depreciation over a longer course of time, the yearly deductions for depreciation are smaller than with the other method. Taxpayers who choose the alternative depreciation system schedule must use this schedule for all property of the same class that was placed in service during the taxable year. However, taxpayers may elect the alternative depreciation system schedule for real estate on a property-by-property basis. The alternative depreciation system recovery schedule is listed in IRS Publication 946.

  1. Accelerated Depreciation

    Accelerated depreciation is any method of depreciation used for ...
  2. Bonus Depreciation

    A bonus depreciation is a tax relief that allows a business to ...
  3. Group Depreciation

    Group depreciation combines similar fixed assets into a pool ...
  4. Fully Depreciated Asset

    A fully depreciated asset is a property, plant or piece of equipment ...
  5. General Depreciation System - GDS

    The general depreciation system (GDS) is the most commonly used ...
  6. Salvage Value

    Salvage value is the estimated value that an owner is paid when ...
Related Articles
  1. Taxes

    Recoverable Depreciation: How it Works

    Recoverable depreciation is a concept used in many insurance policies and claims.
  2. Taxes

    Filling out Form 4562, step-by-step

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

    Depreciation: Straight-Line Vs. Double-Declining Methods

    Appreciate the different methods used to describe how book value is "used up".
  4. Investing


    Otherwise known as Earnings Before Interest, Taxes, Depreciation and Amortization. Learn more about this indicator of a company's financial performance.
  5. Investing

    Alternative Investments: How The Game Has Changed for Retail Investors

    Learn how retail investors are using liquid alternative investments to diversify their portfolios. These funds are not correlated with stocks and bonds.
  6. Investing

    The Pros & Cons of Alternative Investments

    Alternative investments are becoming popular investment vehicles for individual investors.
  7. Investing

    Alternative Investments for the Rest of Us

    Alternative investments can hedge your portfolio against economic turbulence.
  8. Taxes

    Sell Your Rental Property for a Profit

    Learn how to sell your rental property for a profit. Find out how to master the selling process.
  9. Insights

    Two Alternatives for the U.S. LIBOR Benchmark Rate

    Working with the Fed, major Banks have identified two strong alternatives for U.S. credit market to replace LIBOR
  1. Does accumulated depreciation affect net income?

    Accumulated depreciation is a running total of the depreciation expense that has been recorded over the years. However, it ... Read Answer >>
  2. What is the relationship between accumulated depreciation and depreciation expense?

    Understand the relationship between accumulated depreciation and depreciation expense. Learn how each one is accounted for ... Read Answer >>
  3. What is the tax impact of calculating depreciation?

    Understand the tax implications of a company's depreciation. Learn how differences in accounting methods change the amount ... Read Answer >>
  4. How does depreciation affect cash flow?

    Depreciation is a non-cash accounting charge doesn't directly affect cash flow, but there are certain tax situations whereby ... Read Answer >>
  5. What are some examples of the main types of capital expenditures (CAPEX)?

    Learn about different expenses with acquiring assets that are considered capital expenditures and should be depreciated over ... Read Answer >>
Trading Center