MACRS is how most business assets are depreciated for US federal income tax. Rather than estimating useful life and salvage value, you look up the asset's property class and apply the prescribed recovery period, method and convention. Salvage value is ignored — the full cost is recovered. The IRS explains the rules in Publication 946.
Key elements
- Systems — the General Depreciation System (GDS) is the default; the Alternative Depreciation System (ADS) uses longer, straight-line recovery and is required in certain cases.
- Property classes — for example 5-year property (such as computers, cars and light trucks) and 7-year property (such as office furniture and much machinery); real property has much longer periods.
- Methods — 200% or 150% declining balance switching to straight-line, or straight-line, depending on the class.
- Conventions — half-year for most personal property; mid-quarter if more than 40% of the year's property is placed in service in the last quarter; mid-month for real property.
Worked example: 5-year property, half-year convention
A business places $10,000 of computer equipment in service. Using the IRS table percentages for 5-year property (200% declining balance, half-year convention):
| Tax year | Rate | Deduction |
|---|---|---|
| 1 | 20.00% | $2,000 |
| 2 | 32.00% | $3,200 |
| 3 | 19.20% | $1,920 |
| 4 | 11.52% | $1,152 |
| 5 | 11.52% | $1,152 |
| 6 | 5.76% | $576 |
| Total | 100% | $10,000 |
For 7-year property under the same convention the table rates are 14.29%, 24.49%, 17.49%, 12.49%, 8.93%, 8.92%, 8.93% and 4.46%.
In Asetavo
MACRS is available as a depreciation method in Asetavo, typically on the tax profile alongside a straight-line book profile.