MACRS Methods

The Tax Reform Act of 1986 created a number of changes in the way depreciation is calculated for all assets acquired after December 31, 1986. This tax act made significant changes to the earlier Accelerated Cost Recovery System (ACRS), and created the modified ACRS (MACRS).

Recovery periods were generally extended. The typical recovery period for most personal property increased from 5 to 7 years, using 27.5 years for residential real property and 31.5 years for nonresidential real property. (The Revenue Reconciliation Act of 1993 extended the life of nonresidential real property placed in service after May 12, 1993, to 39 years.) A 200% declining-balance MACRS formula replaced the 150% declining-balance ACRS tables. The recovery rate for real property also fell from 175% declining-balance to a straight-line computation in MACRS.

The MACRS methods created by the Tax Reform Act of 1986 are mandatory for most tangible property placed in service after December 31, 1986. Taxpayers could also choose to use MACRS for certain transitional property placed in service after July 31, 1986, and before January 1, 1987. Post-1986 depreciation on property placed in service before 1987 will continue to be computed under the method used when the property was placed in service.

There are three standard MACRS depreciation methods: MACRS formula, MACRS table, and Alternative Depreciation System (ADS) straight-line MACRS. A fourth depreciation method, Method MI, permits entry of the shorter recovery periods allowed for qualifying Indian Reservation property.

Note: When you use any of the MACRS depreciation methods, the application always applies the averaging conventions as if they are month-based, even if you use a 52/53-week accounting cycle.