Depreciation under the Modified Accelerated Cost Recovery System (MACRS) is the primary method used to recover the cost of tangible property placed in service after 1986. MACRS includes two systems: the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Under MACRS, assets are categorized into classes with predetermined recovery periods, and depreciation is calculated using specific percentages over those periods.
Recovery Periods for MACRS Property
- 3-year property: 3 years
- 5-year property: 5 years
- 7-year property: 7 years
- 10-year property: 10 years
- 15-year property: 15 years
- 20-year property: 20 years
- 25-year property: 25 years
- Residential rental property: 27.5 years
- Nonresidential real property: 39 years
- Railroad gradings and tunnel bores: 50 years
Basis for Depreciation
The depreciable basis is determined by multiplying the cost or other basis of the property by the percentage of business/investment use. From this, subtract any applicable credits or deductions, including:
- Section 179 expense deduction
- Deduction for removal of barriers to the disabled and elderly
- Disabled access credit
- Enhanced oil recovery credit
- Credit for alternative fuel vehicle refueling property
- Credit for employer-provided childcare facilities and services
- Special depreciation allowance (if claimed)
- Basis adjustments for investment credit or advanced manufacturing investment credit property
MACRS Recapture
If you dispose of property depreciated under MACRS, any gain is generally recaptured as ordinary income up to the amount of depreciation previously allowed or allowable. This includes:
- Section 179 expense deduction claimed on the property
- Special depreciation allowance (unless elected not to claim)
- Deduction under section 179B for sulfur regulation compliance costs
Recapture does not apply to residential rental or nonresidential real property unless a special depreciation allowance was claimed.
Alternative Depreciation System (ADS)
ADS requires straight-line depreciation over the ADS recovery period. For residential rental property placed in service after 2017, the ADS recovery period is 30 years. For water utility property and railroad gradings/tunnel bores, the ADS recovery period is 50 years.
Disposal of MACRS Assets
If you dispose of a portion of a MACRS asset, you must reduce the basis and depreciation reserve by the portion attributable to the disposed assehttps://www.irs.gov/pub/irs-prior/i4562--2025.pdft as of the first day of the tax year before computing the current year’s depreciation deduction.
Source:
Form 4562 Instructions - Depreciation and Other Information - MACRS
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. For complex tax situations, consult a CPA or tax attorney.