Accelerated depreciation means any method of depreciation expense in which the business can claim a larger amount of depreciation expense in the early years after acquiring the asset. 

Accelerated depreciation expense is tax advantageous because businesses generally benefit from accelerating rather than deferring deductions. It also makes sense from an economic standpoint because an asset’s useful life does not diminish evenly over a number of years. For example, anyone who has ever purchased a new vehicle knows that the value plummets immediately when the buyer drives it off the car dealer’s parking lot.  

Example of Accelerated Depreciation Expense vs. Straight Line

For example, suppose a business buys a piece of machinery for $10,000 and depreciates it using the straight-line method over five years. In that case, the company incurs a depreciation expense of $2,000 per year, the same for each of the five years. 

Straight-line depreciation looks like the following:

  • Year 1: $2,000
  • Year 2: $2,000
  • Year 3: $2,000
  • Year 4: $2,000
  • Year 5: $2,000

The straight-line method is not accelerated because depreciation expense is not greater in the early years. 

On the other hand, if the business opts for the Modified Accelerated Cost Recovery System (MACRS) 200% Declining Balance method of depreciation expense, the amounts are different. For the same $10,000 five-year property using the half-year convention, the business would deduct 20% of the cost in year 1, 32% in year 2, 19.20% in year three, 11.52% in years 4 and 5, and 5.76% in year 6. 

MACRS 200 DB looks like the following:

  • Year 1: $2,000
  • Year 2: $3,200
  • Year 3: $1,920
  • Year 4: $1,152
  • Year 5: $1,152
  • Year 6: $576

The 200DB method is accelerated because the company claims a greater dollar amount of depreciation expense in earlier tax years. Notice how the company will claim $7,120 of depreciation expense by year 3, while under the straight-line method the depreciation would only be $6,000.

Other Information

Taxpayers looking for more information on U.S. federal tax rules for depreciation methods can visit the IRS Publication 946 (How to Depreciation Property).