The Modified Accelerated Cost Recovery System (MACRS) is a depreciation method used for U.S. federal income tax purposes. MACRS applies to most business assets placed into service after 1986.
MACRS consists of two systems:
In most cases, taxpayers use GDS unless specifically required to use ADS. However, taxpayers can elect to use ADS instead of GDS. The decision to make the election will depend upon the circumstances.
Basis for Depreciation under MACRS
The company’s basis for depreciation in the asset is generally the property’s cost or other basis multiplied by its business use.
For example, a U.S. corporation purchases equipment for $5,000, which is used 100% for business purposes. The corporation’s basis in the asset for depreciation purposes is $5,000 ($5,000 times 100%).
Instead, assume a U.S. corporation purchases a vehicle for $25,000. The company uses the vehicle primarily for business; however, a corporate director also uses the car for personal trips. The corporation estimates business use is 90% and personal use is 10%. The corporation’s depreciable basis in the property is $22,500 (90% times $25,000).
Depreciation Methods under MACRS
- Declining Balance Method (either 200% or 150%)
- Straight-line depreciation method
- ADS using straight-line depreciation
More Information
Taxpayers can reference IRS Publication 946 (How to Depreciate Property) for more information on MACRS and the various depreciation rules for U.S. federal tax purposes.