MACRS (Modified Accelerated Cost Recovery System)
Authority: IRC §168; Form 4562
MACRS is the default depreciation system for tangible property placed in service after 1986. It assigns every asset a recovery period (5 years for vehicles and computers, 7 years for office furniture and most equipment, 15 years for land improvements, 27.5 years for residential rentals, 39 years for nonresidential buildings) and a method. Most personal property uses 200% declining balance switching to straight line, which front-loads deductions; real property uses straight line. Conventions control the first-year slice: personal property generally uses the half-year convention, but if more than 40% of the year's additions land in the fourth quarter, the mid-quarter convention applies; buildings use mid-month. Bonus depreciation and Section 179 sit on top of MACRS as accelerators. Whatever is not expensed through those provisions is recovered on the MACRS schedule via Form 4562.
Example
A $10,000 office furniture purchase is 7-year property. Under 200% declining balance with the half-year convention, year-one depreciation is $1,429, year two $2,449, with the remainder recovered over the following six years.
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