What Does Asset Depreciation Range Mean?
Asset depreciation range was an accounting method established by the Internal Revenue Service in 1971 to determine the useful life of specific classes of depreciable assets. It was replaced with the accelerated cost recovery system (ACRS) in 1981, which in turn was replaced by the modified accelerated cost recovery system (MACRS) in 1986.
Understanding Asset Depreciation Range (ADR)
Asset depreciation range assigned upper and lower limits to the estimated useful lives of asset classes. It gave businesses a lot of flexibility to determine the useful life of an asset because the asset depreciation range allowed the taxpayer a 20% leeway above and below the IRS's established useful life for each asset class. Thus, if the established useful life of a desk was considered to be 10 years, the taxpayer could depreciate it over eight to 12 years.
ADR was introduced in an attempt to simplify calculations and provide some uniformity to tax deductions from depreciation. But the system was too complicated: there were over 100 classes for tangible assets based on the taxpayer's business and industry. As a result, it brought taxpayers and the IRS into a disagreement over the useful life, salvage value and repairs of assets.
So ADR was replaced by the ACRS system, and then in turn by the MACRS as part of the Tax Reform Act of 1986. MACRS allows for greater accelerated depreciation over longer time periods. Today that desk can be depreciated over seven to 10 years.