The Modified Accelerated Cost Recovery System or shortly known as MACRS is a depreciation used for tax purposes. MACRS Depreciation Table shows the recovery year for each month.
Regardless of the type of asset, the MACRS must be used for depreciation.
How to calculate MACRS depreciation?
First, you must determine the original value of the asset you want to figure out the depreciation. Then, the property’s class must be also determined. This isn’t related to the type of property. It’s about the useful life of the property.
These will allow you to figure out which depreciation method to use. You can use the following depreciation methods.
- General Depreciation System (GDS)
- Alternative Depreciation Method (ADS)
- Straight-Line Method (under the ADS)
You must select a convention method for mid-month, mid-quarter, or half-year. As the last step, determine your percentage. You can use the depreciation rate tables below to figure out the percentage of the asset’s value you can itemize.
Depreciation Rate Tables
|Class||Common Assets||Depreciation Method|
|3-year||Tractors, horses, small, small tools||200% Declining Balance|
|5-year||Computers, autos, construction equipment, research and development||200% Declining Balance|
|7-year||Office furniture, fixtures, most machinery||200% Declining Balance|
|10-year||Mobile homes, machinery||200% Declining Balance|
|15-year||Billboards, service station buildings, telephone equipment||150% Declining Balance|
|20-year||Sewer pipes, most utility property, land improvements||150% Declining Balance|
|27.5-year||Residential rental property||Straight Line (ADS)|
|39-year||Nonresidential rental property||Straight Line (ADS)|
General Depreciation System
3 year properties
- Any horse (other than a racehorse) over 12 years old when placed in service.
- Any racehorse over 2 years old when placed in service before January 1, 2009. (Any racehorse placed in service after December 31, 2008, and before January 1, 2021, is treated as 3-year property regardless of the age of the racehorse.)
- Tractor units for over-the-road use.
- Qualified rent-to-own property (defined later).
5 year properties
- Automobiles,and copiers).
- Any property used in research and experimentation.
- Breeding cattle and dairy cattle.
- Appliances, and trucks.
- Any machinery equipment (other than any grain bin, cotton ginning asset, fence, or other land improvements) used in a farming business and placed in service after 2017, in tax years ending after 2017. The original use of the property must begin with you after 2017.
- Any qualified technological equipment.
- Office machinery (such as typewriters,and wind energy property.,buses,calculators,carpets,etc.,furniture,solar,taxis,used in a residential rental real estate activity.
- Certain geothermal
7 year properties
- Office furniture and fixtures (such as desks, and safes).
- Used agricultural machinery and equipment placed in service after 2017, cotton ginning assets, files, grain bins, or fences used in a farming business (but no other land improvements).
- Railroad track.
- Any property that does not have a class life and has not been designated by law as being in any other class.
10 year properties
- Any single-purpose agricultural or horticultural structure.
- Any tree or vine bearing fruits or nuts.
- Qualified small electric meter and qualified smart electric grid system placed in service on or after October 3, 2008.
- Vessels, barges, tugs, and similar water transportation equipment.
15 year properties
- Any municipal wastewater treatment plant.
- Any natural gas distribution line placed in service after April 11, 2005, and before January 1, 2011.
- Any telephone distribution plant and comparable equipment used for a 2-way exchange of voice and data communications.
- Any retail motor fuel outlet such as a convenience store.
- Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges).
- Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005.
- Initial clearing and grading land improvements for gas utility property.
20 year properties
- Farm buildings (other than single-purpose agricultural or horticultural structures).
- Initial clearing and grading land improvements for electric utility transmission and distribution plants.
- Municipal sewers not classified as 25-year property.
25 year properties
- Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996.
- Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property.
Residential Rental Properties
Any building that is rented and 80% or more of its gross income is from dwelling units for any tax year. The recovery period for residential rental properties is 27.5 years.
Nonresidential Rental Properties
Any commercial rental property with a class life of less than 27 and a half years is considered as nonresidential property. The recovery period for nonresidential rental properties is 39 years.