Modified Accelerated Cost Recovery System (MACRS)

RSS
Modified on 2009/11/11 14:10 by tmkern Categorized as Accounting
See Also:
Straight Line Depreciation
Double Declining Depreciation Method
Accelerated Method of Depreciation
Financial Accounting Standards Board (FASB)
Generally Accepted Accounting Principles

MACRS Definition The modified accelerated cost recovery system (MACRS) method of depreciation assigns specific types of assets to categories with distinct accelerated depreciation schedules. MACRS is required by the IRS for tax reporting but is not approved by GAAP for external reporting.

MACRS Depreciation Calculation

To calculate depreciation for an asset using MACRS, first determine the asset’s classification, and then use the table (below) to find the appropriate depreciation schedule.

When using MACRS, an asset does not have any salvage value – the asset is always depreciated down to zero, since the sum of the depreciation rates for each category always adds up to 100%. When calculating depreciation expense for MACRS, always use the original purchase price of the asset as the depreciable base for each period. Note that each category is depreciated for one year longer than its classification period. An asset classified under 3-Year MACRS is depreciated for 4 years, an asset classified under 5-Year MACRS is depreciated for 6 years, and so on.

MACRS Example

For example, an asset purchased for $100,000 that falls into the 3-Year MACRS category shown below, would be depreciated as follows:

Year		Depreciation Rate	     Depreciation Expense
  1		     33.33%	         $33,330     (33.33% x $100,000)
  2		     44.45%	         $44,450     (44.45% x $100,000)
  3		     14.81%	         $14,810     (14.81% x $100,000)
  4		      7.41%	          $7,410     (7.41%   x $100,000)

MACRS Depreciation Table

Below is the table for Half-Year Convention MACRS for 3, 5, 7, 10, 15, and 20 year depreciation schedules. 

	Depreciation Rates (%)

Year	3-Year 	5-Year 	7-Year 	10-Year 15-Year  20-Year 

  1	33.33	20	14.29	10	5	3.75
  2	44.45	32	24.49	18	9.5	7.219
  3	14.81	19.2	17.49	14.4	8.55	6.677
  4	7.41	11.52	12.49	11.52	7.7	6.177
  5	 	11.52	8.93	9.22	6.93	5.713
  6	 	5.76	8.92	7.37	6.23	5.285
  7	 	 	8.93	6.55	5.9	4.888
  8	 	 	4.46	6.55	5.9	4.522
  9	 	 	 	6.56	5.91	4.462
 10	 	 	 	6.55	5.9	4.461
 11	 	 	 	3.28	5.91	4.462
 12	 	 	 	 	5.9	4.461
 13	 	 	 	 	5.91	4.462
 14	 	 	 	 	5.9	4.461
 15	 	 	 	 	5.91	4.462
 16	 	 	 	 	2.95	4.461
 17	 	 	 	 	 	4.462
 18	 	 	 	 	 	4.461
 19	 	 	 	 	 	4.462
 20	 	 	 	 	 	4.461
 21	 	 	 	 	 	2.231

MACRS and the IRS

For more detailed information regarding MACRS, go to: irs.gov/publications